Harel Insurance Investments & Financial Services Ltd.

Interim Statement As at September 30, 2009

The original language of these Interim Consolidated Statements is Hebrew. The Hebrew version shall prevail over any translation thereof. WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Contents Page

Condensed Interim Financial Statements at September 30, 2009 Board of Directors' Report on the state of the Company at September 30, 2009: 1-1

Auditors' Review 2-1

Condensed Interim Consolidated Financial Statements at September 30, 2009 (Unaudited):

Interim Condensed Consolidated Balance Sheets 2-3

Interim Condensed Statement of Income and loss 2-5

Interim Condensed Statements of Capital changes 2-7

Interim Condensed Consolidated Statements of Cash Flows 2-9

Notes to the Interim Financial Statements 2-13

Annex: Annex A - Harel Insurance Company Ltd. - Details of Assets in respect to yield dependent contracts and other financial investments. Annex B - Dikla Insurance Company Ltd. - Details of Assets in respect to yield dependent contracts and other financial investments.

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Board of Directors' Report

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

Harel Insurance Investments & Financial Services Ltd. Board of Directors’ Report For the nine months ended September 30, 2009

The Board of Directors' Report for the nine months ended September 30, 2009 ("the Reporting Period"), reflects the principal changes in the business situation of Harel Insurance Investments & Financial Services Ltd. ("Harel Investments" or "The Company") during this period, and it was prepared taking into account that the reader is also in possession of the Group's full Periodic Report for 2008 which was published on March 31, 2009 ("the Periodic Report"). The Company's consolidated financial statements are prepared, as of January 1, 2008, in accordance with International Financial Reporting Standards (IFRS). For details of the basis of preparing the financial statements pursuant to IFRS, see Note 2 to the Financial Statements.

This Board of Directors' Report also includes forward-looking information, as defined in the Securities Law, 5728-1968. Forward-looking information is uncertain information regarding the future, based on information in the Company's possession on the reporting date and including the Company's estimates or intentions at the time of preparing the report. Actual performance may differ substantially from the results estimated or inferred from this information. In certain instances, sections can be found that contain forward-looking information where words such as: "The Company/Group estimates", "the Company/the Group believes", "the Company/Group anticipates", and the like appear; however, such information may also be worded differently. The Company makes no undertaking to submit revisions regarding changes that may occur concerning forward-looking information.

1. Description of the Company 1.1 General Harel Insurance Investments and Financial Services Ltd. ("Harel Investments" or "The Company") is a public company whose shares have been traded on the Tel Aviv Stock Exchange since 1982 . The Company, together with its subsidiaries ("the Group") operates mainly in the following areas: A. In the various areas of long-term saving, the Company operates through the following subsidiaries: Harel Insurance Company Ltd. (fully controlled) ("Harel Insurance"); Dikla Insurance Company Ltd. ("Dikla") (65% holding) regarding signing an agreement to purchase full control of Dikla see para. 1.7.3); Interasco Societe Anonyme General Insurance Company S.A.G.I. (fully controlled) ("Interasco"), which operates in Greece in the general insurance sector; and through the affiliated company, Turk Nippon which operates in Turkey (90% holding) and ICIC (in which the Company has a 33.3% holding). In the area of long-term savings, the Company operates through the subsidiaries all of which are provident fund and pension funds management companies as follows: Provident funds management companies: Harel Gemel Ltd. (fully controlled) ("Harel Gemel"); Atidit Provident Funds Ltd. (fully controlled) ("Atidit Gemel") and Tzva Hakeve (regular army) Saving Fund - a Provident Fund Management Company ("Tzva Hakeva").

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Pension funds management companies: Harel Pension Fund Management Ltd. (fully controlled) ("Harel Pension"); Manof Pension Funds Management Ltd. (fully controlled) ("Manof"); Gilad Comprehensive Pension Fund Ltd. (fully controlled by the Company since February 14, 2008) ("Gilad Pension"), and Le'Atid Pension Fund Management Company Ltd. (79% holding), which manages an old pension fund ("Le'Atid"). Regarding the requirement set on the Company to merge pension funds management companies, so that it holds no more than 2 new pension-fund management companies until December 31, 2009, see para. 1.1.5.2.15 to chapter 1 to the Periodic Report as at December 31, 2008, and para. 1.4 below. B. In the financial services and capital market sector - through the subsidiary Harel Finance Ltd. ("Harel Finance") (fully controlled by the Company), and its subsidiaries: Harel-Pia Mutual Funds Ltd. ("Harel-Pia"), Harel Finance Trade & Securities (which is a stock exchange member) and Harel Finance Investment Management Ltd. (which is a licensed investment consultant), Harel Financial Products ("Harel Products") engage in financial products, such as: basket certificates, covered warrants, and more. The products are offered to the public through the subsidiary Harel Sal Ltd. ("Harel Sal") which is a reporting corporation under the Securities Law and issues index products (covered warrants and basket certificates). The Group has been active in the insurance industry for more than 70 years. According the Financial Statements for the year 2008, the Group is the third largest insurance group in Israel with a market share of about 18. 6%. In the health insurance sector, the Group is the largest and leading group in the market; in the general insurance sectors the Group is the second largest, and it is the third largest with regard to the volume of life assurance premiums. The Group's share of the new pension fund management market is approximately 11.5% in the market, in the provident funds management sector it accounts for approximately 7.8% of the market, and in the mutual funds management sector it accounts for approximately 11% of the market. The activity of the Company itself focuses on the management, supervision and control of the subsidiaries, on-going planning of the Group's activities and initiating moves and investments both directly and through the Group's companies.

1.2 Interested parties in the Company 1.2.1 The Company's principal shareholders are the Hamburger family (Yair Hamburger, Gideon Hamburger and Nurit Manor) ("the Hamburger Group") who hold 41.14% of the Company’s shares (mainly through a holding company); Sampoerna Capital PTE (a Singapore company controlled by Mr. Peutra Sampoerna) ("Sampoerna Group") which holds 20.82% of the Company’s shares; and until July 21, 2009 ,the Israel Discount Bank Ltd, was an interested party as well ("the Bank") and held 5.97% of the Company’s shares. On July 21, 2009, the Bank sold his Company's holdings and ceased to be an interested party. 1.2.2 Concerning the shareholders' agreement between the Hamburger Group and the Sampoerna Group - see Chapter 4 of the Periodic Report, Article 24. Regarding the negotiations between the Sampoerna Group and the Hamburger family in connection with internal changes in the controlling nucleus - see par. 1.5.7 below. 1.3 Reorganization On August 31, 2009, the Board of Directors of the Company and of Harel Insurance approved a reorganization of the management of Harel Insurance and its subsidiaries. The purpose of this change is to focus the Group's activity by customers and categories of distribution channels. This reorganization entails the responsibility for each of the Company's different distribution channels being concentrated in one business unit, unlike

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the present state of affairs where the various distribution channels work with different divisions, depending on the class of product for which each division is responsible. This change will enable the Group to lever its activity through the different distribution channels and offer customers the range of products in all areas of activity. This change places the customer in the center, with the Company's operations focusing on the customer and on the distribution channel that serves it. The restructuring will also reduce the control bias in Harel Insurance's management. 1.4 Restructuring Further to the aforementioned description of the Company's obligation to merge pension fund management companies, so that by December 31, 2009 the Company will no longer hold more than two new pension fund management companies, the Group is preparing to restructure and carry out the following mergers: (A) To merge Harel Pension Fund Management Services (1987) Ltd. (wholly owned by Harel Pension) into Harel Insurance. (B) To merge Gilad Comprehensive Pension Fund Ltd. into Harel Pension. Completion of the mergers is subject to obtaining the necessary regulatory approvals by law, including that of the Commissioner of Insurance and the Tax Authority. The boards of directors of the relevant companies in the Group have approved the aforementioned restructuring. 1.5 Material changes in the Company's business during the Reporting Period 1.5.1 Credit card venture On May 14, 2007, the Company entered into agreement with Israel Credit Cards Ltd. (CAL) to set up a joint company that would engage in extending credit to customers, based on a unique credit-card platform that CAL would issue for this purpose for the joint company. The parties also signed an agreement regulating the joint activity as part of the joint venture until the necessary regulatory approval is obtained for establishing the joint company, including approval from the Bank of Israel as the joint company is an auxiliary banking corporation. Despite the considerable time that has passed since the agreements were signed, Bank of Israel approval has not been forthcoming and the parties therefore concluded that such approval cannot be expected in the near future. The parties therefore reached an agreement according to the Company would abandon the joint venture and leave it exclusively in the hands of CAL. Accordingly, on August 30, 2009, the Company and CAL signed an agreement arranging the Company's departure from the joint venture and the method of settlement of the accounts between the parties with respect to the results of the activity in the joint venture. Pursuant to the provisions of the agreement, the final settlement of accounts regarding the outcome of the venture will take place on June 30, 2011. According to the agreement the Company's exposure is limited to a maximum of NIS 4 million. 1.5.2 Harel Insurance Finance & Issuing Ltd. - publication of a shelf prospectus Pursuant to a decision from July 16, 2009 made by the Board of Directors of Harel Insurance Finance & Issuing Ltd., a wholly owned subsidiary of Harel Insurance, on September 2, 2009 the Company published a draft shelf prospectus after having received, on that day, the Securities Authority's permission to publish the prospectus.

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Harel Insurance Finance & Issuing Ltd. raises money in Israel for Harel Insurance through public and private offerings of bonds and liability certificates, the proceeds of which are deposited with Harel Insurance for it to use at its discretion and responsibility. 1.5.3 Issue of stock options for employees

Pursuant to a decision of the Company's Board of Directors from June 3, 2009, which was passed following approval from the Audit Committee, on June 4, 2009, the Company published an outline for offering securities to employees in accordance with the Securities (Details of an Outline of an Offer of Securities to Employees) Regulations, 5760-2000, and to the Securities (Private Offering of Securities in a Registered Company) Regulations, 5760-2000. Pursuant to the outline of an offering of securities to employees, on July 6, 2009, the Company allotted 698,956 stock options, of which 133,596 stock options were allotted to the incumbent deputy CEO of the Company and CEO of Harel Insurance (concerning the termination of the term of office of deputy CEO of the Company and Harel Insurance's CEO, and the expiration of his allocated options - see par. 10), to be exercised for 698,956 ordinary shares of NIS 1 par value. Due to the resignation of the Company's deputy CEO and CEO of Harel Insurance, the options allotted to him expired so that the overall number of stock options, at the Reporting Date, is 565,360. As at the options grant date (July 6, 2009), the value of the stock options calculated according to a binomial model, less the expired options was approx. NIS 22 millions, and it will be charged as an expense to the Company's financial statements over the anticipated vesting period of the options, from the third quarter of 2009. In the third quarter of 2009, the recognized expense in the financial statements regarding the aforementioned options grant totaled to NIS 1.8 millions. For details, see Note 2E and 8F to the Financial Statements. Regarding a further allocation of stock options for employees - see para. 1.7.5 below. 1.5.4 Ratification of the rating for subordinated liability notes

On June 17, 2009, Standard & Poor's Maalot announced the ratification of the rating for subordinated liability notes of Harel Insurance and left the rating at AA, changing the rating outlook from stable to negative. 1.5.5 Givat Shmuel mall and Bilu Center commercial center

On June 16, 2009, a transaction was completed in which Harel Insurance and Dikla sold half of the ownership in the Givat Shmuel shopping mall (stages 1-3), to Azo-Reit Commercial Centers Ltd. ("Commercial Centers") and Azo-Reit Bilu Center Ltd. ("Bilu Center"), companies that belong to British Israel Investments Ltd. ("British"), for NIS 95 million. Part of the consideration for the acquisition (75%) was paid through an allocation to Harel Insurance and Dikla of shares in the Bilu Center company, such that upon completion of the transaction, Harel Insurance and Dikla hold 28% of the issued and paid- up capital of Bilu Center (at full dilution). The balance of the consideration (25%) for purchasing half of the Givat Shmuel mall ownership is a loan of Harel Insurance and Dikla to Bilu Center, concurrent with a loan, pro rata to Commercial Centers holding in Bilu Center. Harel Insurance and Dikla acquired stages 1 - 3 of the Givat Shmuel shopping mall from Gindi Investments 1 Ltd., Gindi Project Investments 2006 Ltd., and Dagesh Aviv Construction Company Ltd., in a transaction that was completed on July 31, 2008, for NIS 184 million. At that date, the parties signed an agreement to acquire stage 4 of the shopping mall, which was leased to Bank Hapoalim Ltd. for a period of ten years (plus an option to extend the lease period).

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Upon completion of the transaction, Harel Insurance and Dikla hold half of the ownership in the Givat Shmuel shopping mall (stages 1-3), and they also hold 28% of the issued and paid-up capital of Bilu Center and the entire ownership of Stage 4 of the Givat Shmuel shopping mall, acquisition of which was completed on March 3, 2009 for NIS 13.6 million, plus VAT. The Givat Shmuel shopping mall was acquired mainly from reserves held against yield- dependent commitments (profit-sharing policies) of Harel Insurance, so that the sale of half of the shopping mall has no material impact on the Company's performance or that of the subsidiaries. 1.5.6 Acquisition of an office block in London On May 22, 2009, Harel Insurance (for its nostro portfolio and for the portfolio of reserves against yield-dependent liabilities), Dikla (for its portfolio of reserves against yield- dependent liabilities), Harel Pension, and other companies, entered into agreement to acquire 49% of the shares of a foreign company, which indirectly holds all the rights in an eight-storey office block in London that is leased to the British government for a long period. Clal Insurance and Clal Finance Group will hold an addition of 49% of the share capital and the remaining shares will be held by a foreign company which specializes in real-estate management in England. Harel Group's companies paid consideration NIS 125.3 million in respect of the transaction. 1.5.7 Negotiations to make internal changes in the Company's controlling nucleus As specified in an immediate report that the Company published on May 14, 2009, the Company's controlling shareholders - the Hamburger and Sampoerna Groups - informed the Company that they are negotiating an internal change in the controlling nucleus of the Company. The negotiations involve the Hamburger family acquiring 10% of the Company's shares from the Sampoerna family at NIS 112 per share. Execution of the transaction is subject to the signing of an agreement between the parties and to the meeting of conditions precedent, to be included in the said agreement, including the necessary approvals by law. 1.5.8 Gilad As mentioned in par. 1.1.5.2.15 in Chapter 1 of the Periodic Report, the dispute between Old Gilad and the Company, in connection with the services agreement, that was signed by Gilad's former CEO, was submitted for arbitration to Vice President Emeritus, Supreme Court of Israel, Justice Theodor Or. As most of the employers whose employees are members of Gilad (since 1995) are members through the new Harel-Gilad Pension Fund and through the provident funds that Harel Insurance acquired from Gilad, the parties attribute considerable importance to continuing to maintain and develop business ties between them. The parties therefore agreed in an agreement that was validated as an arbitration ruling on June 4, 2009, to end the dispute by a settlement, without either party agreeing to or acknowledging the allegations of the other party. Pursuant to the settlement, the parties will set up a joint team, headed by Gilad's CEO and the CEO of Harel Pension, to promote cooperation in a variety of areas. In addition, Harel Insurance will pay Old Gilad an amount of NIS 6.4 million, of which NIS 1.4 million will be paid immediately and the balance will be paid in 5 equal, consecutive, annual installments (index linked but with no interest).

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1.5.9 Harel UK On May 6, 2009, Harel UK, a wholly owned subsidiary of the Company, received a broker's license from the English FSA. Obtaining this license enabled Harel UK to become a licensed broker by Lloyd's. This license will allow Harel UK to operate directly as a broker in transactions on London's insurance market. 1.5.10 Turk Nippon Pursuant to that mentioned in para. 1.1.5.2.2. to Chapter 1 of the Periodic Report, on April 6, 2009, Turk Nippon Sigorta A.S. ("Turk Nippon"), incorporated in Turkey, received confirmation from the Turkish Finance Ministry whereby its insurer's license had been renewed and it began insurance activity in Turkey in all branches of general insurance. Regarding an investment in Turk Nippon's capital, carried out during the reporting period, see Note 6.d.1. to the Financial Statements. 1.5.11 Agreement with National Indemnity Company from Berkshire Hathaway Group On December 31, 2008, Harel Insurance entered into a special agreement for Quota Share reinsurance with National Indemnity Company (NICO), a leading company in the insurance arm of Berkshire Hathaway. Under the Quota Share reinsurance agreement, NICO insures 20% of the retention in all the general (non-life) insurance sectors, including the liability branches of the Harel Group (Harel Insurance, the company in Greece (Interasco S.A.G.I.) and in future business in Turkey (Turk Nippon Sigorta). The agreement shall apply to all the insurance business recorded from January 1, 2009, and shall be in force for two years. Gross reinsurance premiums that were attributed by Harel Insurance for NICO as part of the said transaction, amounted to NIS 331 millions in the Reporting Period, of which NIS 179 millions was reinsurance premiums earned during the reporting period.

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1.6 Handling of the debt arrangements of companies whose securities are held by the Group At the end of August 2009, Zim and Africa Israel announced that there was some uncertainty regarding their ability to meet their commitments to repay debts as well as bonds they had issued, on the prescribed maturity dates. Subsidiaries of the Company hold investments in the bonds and shares of Zim and Africa Israel in their nostro portfolios, in the asset portfolios of their members (yield-dependent policies, provident funds, pension funds), and in mutual funds. Total investments of the Company's subsidiaries (figures are in NIS millions):

September 30, 2009 November 18, 2009

All companies Zim Africa All companies Zim Africa in the Israel in the Israel arrangement arrangement

Total investment in nostro 53.36 14.48 30.07 63.60 14.38 39.5 portfolios

Total investment in portfolios managed for assets of 313.83 36.47 179.20 370.53 48.82 221.04 members and mutual funds ("managed portfolios")

% of total nostro assets 0.30% 0.08% 0.17% 0.36% 0.08% 0.22%

% of total managed portfolios 0.58% 0.07% 0.33% 0.60% 0.08% 0.36%

Scope of investment in shares 1.23% - 1.22 1.29 - 1.27 in nostro portfolios

Scope of investment in shares 1.14% - - 1.26 - - in managed portfolios

Discussions are underway to reach an agreement between Africa Israel and Zim and the bearers of the bonds these companies have issued.

1.7 Changes after the Reporting Date 1.7.1 Real estate purchasing in Herzliya On October 21, 2009, the subsidiaries Harel Insurance, Dikla, Harel Pension, Gilad Pension, Harel Gemel Ltd. and Tzva Hakeva Savings Fund ("Tzva Hakeva") (together: "the Subsidiaries"), entered into a suspensive sale agreement with Tidhar Herzliya Enterprises Ltd. ("Tidhar") to acquire ownership of a building which houses regional medical clinics, and also contains commercial areas on the ground floor, which Tidhar is constructing at the corner of Ben Gurion and Rambam Streets in Herzliya ("the Sale"). The transaction will take effect when several conditions precedent are met, the most important of which are: (a) construction of the building is completed in accordance with the agreed specifications; (b) possession of those parts of the Sale which were leased to Clalit Health Services will be handed over; It is estimated that the suspending conditions will be met by the beginning of 2011.

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The overall consideration to be paid by the Subsidiaries for acquisition of the Sale will be determined according to a multiple of the rent, payable by the entities leasing the parts of the Sale, subject to various adjustments. The consideration is estimated to be NIS 60 million. In principle, the Sale is to be acquired from reserves held against yield-dependent liabilities (profit-sharing policies) of Harel Insurance, from yield-dependent reserves of Dikla, and from the asset portfolios of the members of Harel Gemel, Harel Pension, Gilad and Tzva Hakeva, so that acquisition of the Sale will probably not significantly affect the performance of the Company or the Subsidiaries. 1.7.2 Real estate purchasing in London On October 28, 2009, Harel Insurance and Dikla together with a company specializing in real estate in England, entered into agreement to acquire rental property in London, on an area of 2,500 sq.m. ("the Property"). The Property is located in Clerkenwell in London. There is a long-term lease on the Property to Unicef UK, which uses the building as its UK headquarters. Harel Insurance and Dikla will hold 98% of the Property, and the company specializing in real estate will hold 2%. The overall consideration paid for acquisition of the Property is £11 million. 1.7.3 EMI insurance company On November 2, 2009 the Company announced that it is negotiating with United Guaranty Corporation ("UGC"), an AIG company, to acquire all the issued share capital (100%) of AIG Mortgage Holdings Israel Ltd. ("AIG Holdings"). AIG Holdings is a holding company whose sole activity is the entire ownership (100%) of the issued share capital of E.M.I. Mortgage Insurance Ltd. ("EMI"), a company which operates in Israel as an insurer in the credit insurance business for residential purposes, secured by a mortgage (as a single branch - Monoline). At this stage it is impossible to estimate whether these contacts will develop into a transaction between the parties. 1.7.4 Purchasing of Clalit Health Services holdings in Dikla On July 20, 2008, it was agreed between the Commissioner and Clalit Health Services ("Clalit"), that Clalit will sell its holdings in the subsidiary Dikla (indirect 35% of the share capital) by August 1, 2009. An agreement was also reached whereby until year 2011 Clalit will hold a tender regarding the Clalit customer's group long-term care insurance that since 1998 were insured by Dikla. The Company's management as well as Dikla's management believes that the business relationship with Clalit and providing services for Clalit customers will continue after the selling of Clalit's holdings in Dikla, as well. Consequently, the aforesaid agreements are not expected to have any significant impact on Dikla's business. As noted, on November 3, 2009, the Company signed an agreement with Mor Medical Information Institute Ltd. (a company wholly owned by Clalit which holds 35% of the share capital of Mor-Har Investments Ltd., which holds full ownership of Dikla) (Mor Institute), whereby the Company is to acquire all the Mor Institute's holdings in Mor-Har (35% of the issued share capital of Mor-Har) in consideration of allocating ordinary shares of the Company, accounting for 4.1% of the Company's issued share capital before the allocating (taking into account dormant shares that the Company holds and without taking into account stock options allocated by the Company - see par. 1.5.3 above). Completion of the transaction is contingent on meeting several conditions precedent, including obtaining the necessary permits by law.

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1.7.5 Real estate transaction in Leipzig, Germany On November 27, 2009, Harel Insurance together with Ashtrom Properties Ltd. ("Ashtrom"), entered into a transaction to acquire a rental property in Leipzig, Germany, with a built area of 36,500 sq.m., most of which is rented to Deutsche Telecom AG in a 9- year contract, with an option to extend the lease. The investment was made through a partnership in which Ashtrom, through a subsubsidiary, holds 51%, and Harel Insurance holds 49% through a subsidiary. Total consideration for the property is 29 million euro. The partnership is financing the acquisition partly from shareholders' equity which was invested in it by Harel Insurance and Ashtrom, and partly by means of a bank loan under conditions of non recourse. Completion of the transaction is subject to meeting suspending conditions, including registering ownership of the property and a waiver by the Leipzig municipality of the right of refusal conferred upon it under German law. 1.7.6 Allocation of share options to employees As detailed in par. 1.5.3 above, on June 4, 2009, the Company published an outline for offering securities to employees in accordance with the Securities (Details of an Outline of an Offer of Securities to Employees) Regulations, 5760-2000, and the Securities (Private Offering of Securities in a Registered Company) Regulations, 5760-2000. Subsequent to the outline for an offering of securities to employees and to an initial allotment made on July 6, 2009, on November 30, 2009, the Company's Board of Directors approved an allocation of 247,314 share options each to be exercised for 247,314 Company shares of NIS 1 par value (hereinafter: "the new allotment"). The exercise price of the options is according to the closing price of the Company's share on the stock exchange immediately prior to the Board of Directors' decision (November 29, 2009), that is: NIS 181.8 per share, where this amount is linked to the CPI and fully dividend adjusted, all as specified in the outline plan. The new allotment is to managers in the Group's companies. Of the new allotment, 44,150 share options were allotted to Mr. Michel Siboni, who is the CEO of Harel Insurance and Chairman of the Board of Directors of the financial institutions which are subsidiaries of Harel Insurance (and this in addition to 44,150 share options which were allotted to him on July 6, 2009 when serving in his previous position). Of the new allocation, 190,702 share options were granted to senior executives of the Group's companies (including the allocation to Mr. Siboni). The fair value of the share options allocated in the new allotment is estimated at NIS 13,694 thousands taking into account the possibility that some employees may terminate their employment at an earlier date (excluding the Group's senior executives). The early departure rate is estimated at 5%-8% annually, based on a review of sample data for changes in the workforce at the ranks of the option recipients in recent years. The economic value of each share option offered to the recipients, taking into account employees who leave the Company and the probability of exercising the options early, at an exercise price of NIS 181.8 linked to the CPI, is NIS 61.1 on average. The overall value of the share options will be charged as an expense in the Company's financial statements, over the vesting period of the options, from the fourth quarter of 2009. For details of the method of calculating the fair value of the options and the parameters that were used in implementing the model - see Note 9(f) to the Financial Statements.

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1.8 The Company's areas of activity Through subsidiaries, the Company has four key areas of activity: (A) life assurance and long-term savings; (B) health insurance; (C) general insurance, including: motor property insurance, compulsory motor insurance, other liabilities sectors and other property insurance; (D) capital market financial services sector. For details of the Company's structure of activity, see para. 1.1.5.5 Chapter 1 of the Periodic Report - "Description of the Company's Business". 1.9 Legislation and regulation in the Group's areas of activity The following describes material changes in the legislation and regulations in connection with the Group's areas of activity, since the Reporting Period: 1.9.1 General Provisions of law and Commissioners' provisions 1.9.1.1 In November 2009, the Knesset Finance Committee approved a draft amendment to the Securities (Periodic and Immediate Reports) Regulations, 5730-1970, whereby reporting corporations will be required to submit a report concerning the effectiveness of the internal controls. This report shall include the CPA's opinion regarding the effectiveness of the internal control of financial reporting, as well as a managers' statement which will also address the reasonability of the reports submitted by the corporation. The proposed amendment partially adopts the provisions of sections 302 and 404 of the Sarbanes-Oxley Act of 2002, mandating the inclusion of statements prepared by the corporation's CEO and CFO with respect to the reasonability of the reports, within the context of each annual or quarterly report, and includes an obligation to estimate the effectiveness of the controls and procedures. The proposed amendment is to be implemented for the first time in the periodic report for the period ending on December 31, 2010. The periodic report for 2009 and the Board of Directors' Report for the second quarter of 2010 must include disclosure concerning actions taken up and progress in implementing the provisions of the proposed amendment. 1.9.1.2 On August 16, 2009, several amendments took effect that were prescribed in the Enforcement Law (Amendment no. 29), 5769-2009 (and were published on November 16, 2008). These amendments require an insurer and a management company to provide information regarding an obligor's rights and any loans he may have received, and regarding an insurer - information in respect of guarantees that are in force that were issued at the obligor's request. The amendment allows the Registrar of Enforcement and Collection to issue an order for such information to be handed over, even if it is not based on a waiver of confidentiality, provided that the obligor is someone of means and has evaded payment of his debts or he is deemed to be such. Regarding information about loans and guarantees - the instruction shall be applicable on the date set by the Minister of Justice in the order, but no later than three years after publication of the law. 1.9.1.3 On July 28, 2009, the Commissioner published a Memorandum of Understanding regarding cooperation to promote a central information system and for clearing pension savings money. The Commissioner intends to work towards establishing a clearing house for pension savings whose main functions will be: the transfer of information between the different entities in the pension savings market, and particularly between the pension advisors and agents, between the various financial institutions, between the employers, the distributors and the financial institutions regarding the clearing of money in pension savings. The Commissioner intends to publish an instruction mandating financial institutions, agents and advisors to

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transfer information through a pension clearing house. The Memorandum of Understanding is designed to create a framework for cooperation to advance the process of setting up the pension clearing house, and in part - to encourage joint activity to implement the various stages of its establishment, to choose an infrastructure supplier through which the clearing house will be set up and to establish a corporation that will set up and run the clearing house. The proposed ownership structure is ownership through distributors, the financial institutions and the minister's office, provided that such ownership is divided equally between the distributors and the financial institutions. 1.9.1.4 The Economic Arrangements Law for 2009, which was enacted in July 2009, prescribes a gradual reduction in the corporate tax rate from 25% to 18% (during the years 2011-2016) (for financial institutions, the effective tax rate will be lowered from 35.06% to 29%). In addition, the law prescribes an increase in the maximum amount liable for payment of National Insurance (which was NIS 38,415) to NIS 76,830 for the period from August 1, 2009 until December 31, 2010. The rate of National Insurance payments paid by the employer in respect of his employees' income will increase by 0.4%. Provisions were also prescribed which change the nature of the reporting to the VAT authorities and which prescribe that the VAT Administration will allocate to each business the tax invoice numbers, and a business shall not be entitled to issue tax invoices which do not have such allocated invoice numbers, with the exception of invoices which due to their amount, the VAT Administration has determined are not required to have pre-allocated invoice numbers. The periodic report shall be prepared online, an authorized or secure electronic signature shall be attached to it, and it shall include the defined details. Furthermore, the reporting period for all businesses shall be monthly (the Minister of Finance may stipulate an alleviation in this regard for businesses with a low turnover). The provisions will take effect on January 1, 2012. 1.9.1.5 On July 1, 2009, the VAT Order (Tax Rate on NPOs and Financial Institutions) (Temporary Order), 5769-2009, was published, stipulating that from July 1, 2009, the rate of profit tax that applies to a financial institution will be increased from 15.5% to 16.5%. The order is in force until December 13, 2010. 1.9.1.6 On June 22, 2009, the VAT Order (Tax Rate on a Transaction and on Imported Goods) (Temporary Order), 5769-2009, was published, stipulating that from July 1, 2009, the rate of VAT was increased from 15.5% to 16.5%. The order is in force until December 31, 2010. 1.9.1.7 On June 22, 2009, Control of Financial Services (Insurance) (Application for a License, Training, Specialization and Exams for Insurance Agents, Pension Advisors, and Pension Marketing Agents) (Amendment) Regulations, 5769-2009, were published. According to the amendment, the Commissioner may issue a temporary license for a period of one year to a person whose temporary license has expired, provided that he can prove that he has sat the first professional exam once and failed, and has applied for an additional temporary license before September 30, 2009. 1.9.1.8 In April 2009, the Commissioner issued an instruction concerning the approval of an investment in bonds by financial institutions. The instruction stipulates that a financial institution may not invest in negotiable and non-negotiable bonds unless it receives the relevant bond issue documents, including the wording of the bond and any related document, at least five days before the date of the issue or the date on which it must submit preliminary commitment to acquire the said bonds.

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Report by the committee to review the tax implications of implementing the recommendations of the Bachar Committee 1.9.1.9 On August 2, 2009, the Tax Authority published a report prepared by the committee to review the tax implications of implementing the recommendations of the Bachar Committee. The purpose of the committee was to review the tax repercussions on transactions performed in accordance with the recommendations of the Bachar Committee, in which context the banks sold their holdings in the provident funds, mutual funds and provident fund management companies, and to establish a uniform taxation outline for these transactions and for transactions that may be performed in the future. Concerning the effect of the committee's report – see Note 5C to the Financial Statements. Circulars 1.9.1.10 On November 29, 2009, the Commissioner published a circular concerning the policy of compensation (remuneration) among financial institutions. The purpose of the circular is to establish guidelines for formulating a policy to compensate the financial institution's senior executives and employees (including to employees who actually manage the financial institution investments and receive a bonus). The circular stipulates that the Board of Directors shall discuss and establish the compensation policy in line with the principles defined in the circular (for example, the compensation shall correspond with the financial institution's financial situation and its long-term goals, it shall correspond with the contribution made by the business unit in which the senior executive is employed, etc.) and in line with the circular provisions. The Board of Directors will also discuss and decide how to oversee the proper implementation of the compensation policy, including setting control and reporting rules and correcting irregularities. The board of directors shall periodically review the compensation policy with respect to the level of implementation and risk level of the financial institution, and shall update it where necessary. The bonus-allocation policy for senior executives in the investment department shall be based on a measurement period of at least three years. The financial institution shall publish the compensation policy on its website once a year, by March 31 each year. The circular applies to all financial institutions from July 1, 2010 regarding any person actually engaged in the management of investments in a financial institution and who receives bonuses. The circular will apply to senior executives (as defined in the Companies Law) from January 1, 2011. 1.9.1.11 On November 17, 2009, the Commissioner published circulars which include updates to the monthly report issued by the insurance companies, provident funds and pension funds (these circulars cancel Insurance Circular 2007-1-15, Provident Circular 2007-2-3, and Pension Circular 2007-3-11 respectively). 1.9.1.11.1 The changes in reports to be issued by insurance companies are: (a) investment report - changes were introduced in the reports on investments in ETFs which track indices to include investments in ETFs which track bond indices, the reporting on investments in mutual funds overseas will be expanded, an option will be added for reporting on investments in negotiable futures contracts, reporting on negotiable structured products will be separated from non- structured products, reports on loans secured with other graded collateral will be expanded to include loans with state guarantees as well; (b) Appendix A (Structure of the Monthly Report) and A1 - the exposure sections will be split, so that separate reports will be issued for each fund or investment track, and the exposure clauses will be changed to include reporting in respect of the exposure to shares through options or futures contracts and exposure that is not to shares, foreign currency or overseas through options or futures contracts; (c)

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Appendices C1 and C2 – in policies issued from 2004 onwards, management fees from deposits must be reported at monthly level and cumulatively; (d) Appendix D1 – the transfer clauses were changed from allocation by class of product to allocation at class of entity level; (e) the HS-STD index and the result of the weekly standard deviation must be calculated, and in Appendix 5c they must be reported for the last week in each quarter. The provisions of the circular shall apply in respect of the monthly reporting for January 2010 onwards. Appendix D (transfers) shall be submitted by the report issued in respect of December 2010, and from the reporting in respect of January 2011 Appendix D1 shall be filed instead. 1.9.1.11.2 The changes in the reports to be issued by provident funds are: (a) report on assets and cash flow from assets - the reporting items on investments in index- tracker ETFs were changed to ETFs that track bond indices, in the reporting clauses on investments in foreign mutual funds overseas an allocation was added by classes of specialist funds, an option was added for reporting on investments in negotiable futures contracts, in the reporting clauses on investments in structured products negotiable instruments were separated from non-negotiable instruments, in the reporting clauses on loans guaranteed by other graded collateral loans with state guarantees must also be reported, a report was added on interest in arrears that was paid in respect of a delay in withdrawing money; (b) report on payments and receivables from outside sources - the transfer clauses were adjusted to options for portability so that various reporting clauses were added, and the report on cash transfers to and from a provident fund were cancelled, the names of the reporting clauses for transfers to and from life insurance were changed, designated reporting codes were added for mergers; (c) Appendix A - clauses for reporting on the number of self-employed and salaried members according to ID numbers were added, on the total amounts credited to members who are employers in central severance-pay funds, on the number of members who were charged tax in respect of unlawful withdrawals, reporting on transfers from the fund to and from other entities were separated, the frequency of the reporting regarding external management fees was changed from monthly reporting to quarterly reporting with a two-month delay, the report in respect of tax withheld on capital gains from the member's account was cancelled, clauses on exposure were changed – a report was included in respect of exposure to shares through options or futures contracts and a report was added on exposure that is not to shares, foreign currency or overseas through options or futures contracts. The provisions of the circular shall apply in respect of the monthly reporting for January 2010 onwards. Transitory provisions were prescribed regarding the report on payments and receivables from outside sources and regarding the commencement of reporting for certain codes. 1.9.1.11.3 The changes in reports to be issued by pension funds are: (a) report on assets and cash flow from assets - the reporting items on investments in index-tracker ETFs were changed to ETFs that track bond indices, in the reporting clauses on investments in foreign mutual funds overseas an allocation was added by classes of specialist funds, an option was added for reporting on investments in negotiable futures contracts, in the reporting clauses on investments in structured products negotiable instruments were separated from non-negotiable instruments, in the reporting clauses on loans guaranteed by other graded collateral loans with state guarantees must also be reported, a report was added on interest in arrears that is paid in respect of a delay in withdrawing money; (b) report on payments and receivables from outside sources - the transfer clauses

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were adjusted to the options for portability so that various reporting clauses were added, the name of the reporting clauses for transfers to and from pension funds was changed, designated reporting codes were added for mergers; (c) Appendix A - there will be separate reporting on transfers to the fund to and from other entities, the frequency of reporting on external management fees was changed from monthly reporting to quarterly reporting with a two-month delay, clauses on exposure were changed - a report was included in respect of exposure to shares through options of futures contracts and a report was added on exposure that is not to shares, foreign currency or overseas through options or futures contracts, the report on the weekly standard deviation was cancelled, and the results of the weekly standard deviation which is translated into annual terms must be reported for the last week of the quarter only. From the time that the circular concerning adjustment of the savings track to the member's characteristics takes effect (see par. 1.9.2.23), a full monthly report shall be submitted for each track in the pension fund. The provisions of the circular shall apply in respect of the monthly report issued for January 2010 onwards. Transitory provisions were prescribed regarding the report on payments and receivables from outside sources and regarding the commencement of reporting for certain codes. 1.9.1.12 In November 2009, Control of Financial Services (Insurance) (Minimum Equity Required of an Insurer) (Amendment) Regulations, 5770-2009, were published. The regulations add capital requirements in respect of the following categories: (a) assets that are held against liabilities that are not yield dependent; (b) catastrophe risks in non-life insurance business; (c) credit risks as a rate of the assets in line with the extent of the risk that characterizes the various assets; and - (4) operating risks. In addition, the insurance companies will be required to increase their shareholders' equity by the end of 2011. Among other things, the regulations prescribe that the amount of capital required on account of assets that are held against the insurer's commitments that are not yield dependent shall be no less than the sum of the multiples of the investment in each asset at a rate to be determined in the regulations. The amendment eliminates the definition of "basic capital", the definitions of primary and secondary capital were changed, and tertiary capital was added to the definitions, constituting an additional layer of shareholders' equity (regarding the draft circular which addresses the composition of an insurer's shareholders' equity, see par. 1.9.1.31 below). The amendment shall become applicable thirty days after its publication. Regarding the supplementary capital that the insurance companies in the Harel Group are required to as per the draft regulations, see Note 7 to the Financial Statements. On November 16, 2009, the Commissioner published a temporary order concerning the composition of an insurer's shareholders' equity. Pursuant to the temporary order, during the period from the date on which these regulations commence until the date instructed by the Commissioner, the following provisions shall apply: (a) the definition of primary capital shall also include a fund for allocation of a bonus share, capital funds, and accounts receivable on account of shares; (b) the definition of secondary capital shall include subordinated liability notes and subordinated liability notes that were issued to the controlling shareholders; (c) the definition of shareholders' equity shall include - (i) primary capital - provided that the amount of basic capital is no more than NIS 250 million, the basic share capital shall be at least 50% of the primary capital; (ii) secondary capital - up to a maximum of 50% of the primary capital. Issued and paid-up capital and a premium paid when the shares are issued shall be considered basic share capital.

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1.9.1.13 On September 7, 2009, the Commissioner published a circular concerning the collection of statistical data regarding the settlement of claims. According to the circular, a financial institution shall collect and save data on claims for the previous year (in the format prescribed in the circular) and it shall report the claims data to the Commissioner. A financial institution shall also publish on its website the claims data for the last four years. The circular shall apply to claims filed after the commencement date of the circular - January 1, 2011. 1.9.1.14 On August 31, 2009, the Commissioner published a circular concerning the clarification and settlement of claims and the handling of requests from the public. The circular prescribes rules concerning the method of clarifying a claim and of handling requests from the public, including a time frame for responding to such requests and rules for saving information and documents. The circular applies to insurance companies (and in respect of the categories of insurance defined in it and in respect of the savings component only) and to pension fund management companies, and it stipulates that a financial institution shall investigate and settle claims and handle complaints from the public in good faith, pertinently, thoroughly, efficiently, professionally, transparently and fairly. The circular also prescribes that a financial institution shall define a set of rules for investigating and settling claims and for handling complaints from the public that includes the relevant details according to the draft circular. The set of rules shall be included in the fund's articles and shall be deemed part of the policy conditions. Furthermore, the set of rules must appear on the financial institution's website. Upon receiving a request in connection with the filing of a claim to the financial institution, the financial institution shall give the applicant the documents listed in the draft circular, including the financial institution's set of rules, a document setting forth the process for investigating and settling the claim, instructions concerning the necessary action to be taken by the claimant, and details of the documents required. Within 30 days of coming into possession of all the necessary documents, the financial institution must give the claimant one of the following forms of notification: notice of payment, notice of partial payment, notice containing an explanation and rejection, compromise notice, notice of further investigation, or termination of the investigation. The circular also prescribes rules concerning informing the claimant of the prescription period, the obligation to inform the claimant of his right to appeal a decision made by the financial institution, and rules concerning the investigation of the claim with the help of experts. The draft circular further prescribes that the financial institution's board of directors shall approve a policy for the settlement of claims and for handling requests from the public and it shall discuss this policy at least once a year. The circular shall become applicable on January 1, 2011. 1.9.1.15 On August 9, 2009, the Commissioner published a circular concerning the operation and control of investments made by an institutional entity. The purpose of the circular is to ensure that an organizational infrastructure is in place to operate the investment assets of institutional entities and to monitor their management. The circular prescribes that the back office (the institution's unit that is responsible for accepting, registering and implementing transactions in the investment assets) shall be segregated from the investment system and that its accountability shall guarantee the independence of the investment system. The back office shall be responsible for monitoring the inventory of investment assets, including: (a) recording assets in the operating systems; (b) calculating yields for each asset portfolio managed by the institutional entity; (c) tracking billing and payments; (d) issuing warnings concerning negative indications in debt or borrower status to the relevant entities in the institutional entity; (e) preparing periodic reports for the institutional entities relevant entities and the reports required by the Commissioner. The investment

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control unit shall be separate from the management, development, allocation and assessment units of investment assets and non-negotiable credit, and its accountability shall guarantee that it is independent of the above entities. A financial institution's investment control unit shall be responsible for regularly monitoring and estimating: (a) that the investment system complies with the investment restrictions and investment management rules; (b) that the investment system complies with the level of authorization for performing transactions as prescribed in the financial institution's procedures; (c) the extent and manner to which the investment system implements decisions made by the relevant investment committee or board of directors of the financial institution, as the case may be; (d) compliance with the terms of agreements and activity through suppliers and outside service providers; (e) whether there is a process for routinely monitoring and reporting that borrowers are in compliance with the financial conditions prescribed in the loan agreements; (f) that internal analysis, assessment and rating processes are in place, (g) that there is a procedure in place for investment managers to report to the back office units; (h) to ensure that transactions that take place through suspense accounts are split between the different accounts according to the financial institution's procedures and the provisions of the law. At least once a quarter, the investment monitoring unit shall examine the extent to which the actual exposure of each provident fund, investment track or insurance commitment corresponds with the investment policy and exposure limits set by the financial institution. The circular shall apply from January 1, 2010. 1.9.1.16 On July 26, 2009, the Commissioner published a circular concerning a statement to be issued in advance by a financial institution concerning its investment policy. Pursuant to the provisions of the circular, once a year, in the last quarter, a financial institution must declare its projected investment policy for the coming calendar year. In its statement, the financial institution shall address the share investment channels, government bonds and corporate bond channels, it shall specify the rate of exposure and relevant benchmark indices for each channel, and the overall rate of exposure for the foreign currency investment portfolio. The statement shall also specify the range of deviations from the investment policy in line with the maximum range of deviation prescribed in the circular. In a specialist track (an investment track in which the policy or articles undertake to invest a minimum of at least 50% in a particular investment channel), the statement concerning projected investment policy shall detail the investment policy and the benchmark index only. The statement of projected investment policy shall be published on the financial institution's website within 30 business days of establishing the policy and in the annual report to members. The provisions of the circular apply to insurance companies regarding their yield dependent commitments, and to management companies with respect to the provident funds and pension funds that they manage, as well as to the old pension funds, from January 1, 2010. 1.9.1.17 On July 5, 2009, the Commissioner published a circular clarifying the issue of directors appointed by a financial institution. The circular prescribes that a financial institution's right to recommend that a particular director be appointed by the controlling shareholder of a particular company by virtue of a voting agreement to protect the minority interest alone, that is - a one-sided voting agreement in which the controlling shareholder alone undertakes to support a candidate for the board of directors who is recommended by the financial institution without a parallel undertaking by the financial institution to vote for the directors recommended by the controlling shareholder, shall not in itself be deemed as creating control of the financial institution in the corporation.

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1.9.1.18 On June 21, 2009, the Commissioner published a circular concerning increased involvement by financial institutions in the capital market. The circular prescribes that an institutional investor shall publish the following on its website: (a) the voting policy of its investment committee regarding proposed resolutions on various subjects specified in the Control of Financial Services (Provident Funds) (Participation by a Management Company in the General Meeting) Regulations, 5769-2009; (b) its actual vote cast in corporations in which it has voting rights, and it shall stipulate whether the vote was in line with the voting policy of its investment committee or whether it deviated from such policy, and whether the vote was cast under circumstances involving a conflict of interests that may affect the vote cast; (c) the criteria with respect to the quality of corporate governance that guide the institution's investment committee when making a decision regarding investments in securities. Moreover, the financial institution's investment committee shall routinely review its voting policy and shall revise it where necessary. The circular shall apply from January 1, 2010. 1.9.1.19 On June 21, 2009, a circular was published concerning management's responsibility for the internal control over financial reporting The circular cancels a previous circular on this subject (circular for financial institutions 2007-9-9) which prescribed provisions regarding management's responsibility for the internal control over financial reporting and an Attestation Report to be prepared by the CPA regarding an audit of internal control over financial reporting, and it updates the time frame set in the cancelled circular regarding the implementation of the provisions of Section 404 of the SOX Act. Pursuant to the circular, when publishing the financial reports for 2009, a financial institution shall complete the documentation stage and shall verify the documentation, including verification of the controls documented, and it shall include disclosure on this subject in the board of directors' report. When publishing the quarterly report at June 30, 2010, the financial institution must have completed the stage of scoping the related reports, and it shall provide disclosure in the board of directors' report. When it publishes the annual financial statements at March 31, 2011, the financial institution must have completed the documentation stage and verification of the documentation of the related reports, and disclosure of such shall appear in the board of directors' report. The financial institution's CPA shall confirm that the financial institution complies with the aforesaid provisions which must be implemented by the date of the annual report for 2009 and up to the date of the annual report for 2011. In this context, the CPA must ensure that all the processes prescribed in the project scoping are documented and that the documentation has been verified. The annual report published by a financial institution from the year ending at December 31, 2010, shall include a declaration by management concerning its responsibility for the internal control over financial reporting, regarding reports that are published for the general public. In addition, the financial statements shall include an opinion prepared by the external auditor regarding the internal control over financial reporting. From the report for the year ending December 31, 2011, management's statement regarding its responsibility for the internal control over financial reporting shall refer to any financial report prepared by the financial institution, including financial reports that are published for the general public, financial reports that are submitted to the Commissioner, and financial reports that are published on the financial institution's website. 1.9.1.20 On June 3, 2009, the Commissioner published a circular concerning regulation of the management of supervised entities within the context of the investigation of complaints filed by the public. The circular prescribes provisions concerning the information and documents that must be submitted in response to a complaint made that is forwarded to the supervised entity (insurance companies, management

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companies, insurance agencies, insurance agents, pension advisors, and pension marketing agents) by the Commissioner. According to the circular, the date for producing the reply and relevant documents is 30 days from the date on which the complaint is made. Other documents or information that are requested by the Commissioner must be produced within 14 days. The supervised entity may not, at a later date, raise claims or produce information that is not included in its reply or documents that were not included in the reply, without the Commissioner's prior permission. A supervised entity that is an insurance company or management company shall produce the information and documents for the Commissioner through the website of the public complaints unit, unless the Commissioner has allowed the supervised entity to produce them in another form. If the supervised entity does not have information pertaining to the complaint, without which it is unable to clarify the complaint and this information is in the applicant's possession, then within 14 days of receiving the complaint, the supervised entity must advise the Commissioner that he has no such information, and he must ask the applicant to produce the information within 30 days. The provisions of the circular shall apply from September 1, 2009. 1.9.1.21 On May 26, 2009, the Commissioner published a draft circular concerning publication of the yield components of the insurance companies' nostro portfolio. The circular prescribes that insurance companies shall publish the quarterly asset balances each quarter, concurrent with the publication of the list of the financial institutions' assets at individual asset level in respect of the relevant quarter, specifying the contribution made by each investment channel to the income from investments in respect of these liabilities, allocated according to non profit-sharing life insurance together and general insurance, equity, surplus capital and other liabilities together. The breakdown of the components shall be for each liability according to the investment channels specified in the circular. In addition, there shall be an allocation according to the following categories: Assets in Israel and assets abroad; marketable and liquid assets, and non-marketable assets. An insurance company shall present the profit components for the last 4 quarters, where the first quarter presented will be the quarter ending December 31, 2008. The dates for publishing the data in respect of the following quarters: Quarter ended December 31, 2008, quarter ended March 31, 2009 and the quarter ended June 30, 2009 shall be published together with the data in respect of the quarter ended September 31, 2009. 1.9.1.22 On May 4, 2009, the Commissioner published a circular concerning the structure of the required disclosure in the insurance companies' (interim) financial statements, pursuant to IFRS. Pursuant to the provisions of IAS 1 (revised), starting with the reports for the interim periods in 2009, an insurer must present its comprehensive income, and it may present a separate statement of income and a statement of recognized income and expenses, or it may present profit or loss items as part of the statement of comprehensive income, as specified in the two options presented in the circular. The circular prescribes the following provisions: (a) everything mentioned in the circular (excluding the appendix concerning solo reports) applies only to consolidated statements; (b) the table of notes must include the information included in the comments attached to the notes that appear in the sample report included in the circular; (c) the board of directors' report must include information concerning an impairment of financial assets, as specified in FAQ 14. 1.9.1.23 On April 6, 2009, the Commissioner published a circular concerning the treatment of problematic debts and action to be taken by institutional entities for collecting debt. The circular prescribes provisions pertaining to the method of treating problematic debts and to the action required to collect the debt, including with respect to collaboration with other debt owners. The circular is designed to ensure that

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financial institutions work actively to collect debts, and it defines a framework for deployment by the financial institution to regularly monitor and control the debt that it manages, to review the status of the debt, deal with problematic debt and formulate decisions, and it specifies the entities responsible for performing such action. The circular prescribes that the board of directors must approve a framework of guidelines to ensure that the status of the debt is regularly monitored and that a structured work process is in place to identify a decline in the quality of the credit and failures in the duration of life of the credit at an early stage, and to identify and locate problematic debt, as well as to take action to deal with such debt. Management must appoint a team to be responsible for implementing the debt assessment process. This team shall submit to the proper entities in the institutional entities and to the credit committee, an immediate report concerning debt that has been identified as problematic, and its recommendations regarding further treatment of the debt and the options it has examined. The credit committee shall discuss ways and means of collecting debt that has been identified as problematic, and based on the recommendations of the credit committee, the investment committee shall decide which measures to take. The circular provisions will take effect on April 19, 2009. 1.9.1.24 On March 29, 2009, the Commissioner published a circular concerning an appendix to the monthly report to be issued by financial institutions - customer's account number with a TASE member. In an effort to streamline supervision of trade on the stock exchange, including activity in securities performed by the financial institutions, the circular stipulates that an appendix shall be added to the information required in the "monthly report" circulars (Provident Fund circular 2007-2-3, Pension Fund circular 2007-3-11, and Insurance circular 2007-1-15), which contains a report on the financial institutions' account numbers managed by the stock exchange members. (The text of the appendix is included in the draft circular.) Trade shall be supervised by the Securities Authority and the information shall be transmitted to it for the purpose of the supervision. The reporting shall include details of special values that are associated with the account numbers, by the stock exchange members, for the purpose of single-value identification of the securities and options in the stock exchange computers. The accounts that must be reported are accounts in which transactions in securities or options are made or are likely to be made. The circular provisions will take effect from May 2009 monthly report and so on. 1.9.1.25 On March 9, 2009, the Commissioner published a circular concerning provisions for the auditor of a financial institution. The circular arranges rules to ensure the proper function of the outside auditor of a financial institution, his obligations and work methods, as well as the obligations of the financial institution in connection with an outside audit. The circular prescribes provisions concerning the auditor's appointment and ensuring the qualifications and expertise of the outside auditor, a rotation obligation among the partners responsible for the audit and for reviewing the reports, cooperation between the financial institution and the outside auditor and the circumstances in which the audited financial institution must report to the Commissioner. The circular further stipulates that the outside auditor shall submit to the financial institution's audit committee and balance-sheet committee, once a year, a detailed annual report that contains material findings and the subjects listed in the circular that are relevant to the financial report.The outside auditor shall report to the chairman of the board of directors, to the audit committee and the managing director (CEO), immediately depending on the circumstances, any information which in his opinion they require to fulfill their duties.The circular also prescribes provisions concerning the reports that the outside auditor must submit to the Commissioner, provisions concerning record keeping and the keeping of documents, and provisions

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concerning an audit of the reasonability of reporting the insurance liability sections in the financial report. The provisions of the circular apply from its date of publication. As noted, a detailed annual report shall be submitted for the first time in respect of the 2009 financial statements. The partner responsible for the audit and the partner responsible for reviewing the audit who at the time of publication of this circular lawfully hold positions as partners in a financial institution, may continue to serve as partners in the financial institution until the end of a five-year period from the commencement of their tenure or two years from the publication of the circular, whichever is later. 1.9.1.26 On March 9, 2009, the Commissioner published a circular concerning compensation for the outside directors of institutional entities. The purpose of the circular is to match the conditions of compensation for outside directors of institutional entities that are incorporated as private companies, with the conditions for compensating the outside directors of institutional entities that are incorporated as public companies, as prescribed in the Companies (Rules Concerning Compensation for and the Expenses of an Outside Director) Regulations (Amendment), 5768-2008, from March 6, 2008. The circular defines restrictions concerning the cumulative, maximum compensation payable to an outside director who serves a group of institutional entities. The provisions of the circular apply from its date of publication. 1.9.1.27 On March 2, 2009, the Commissioner published a circular concerning the revaluation of a non-marketable debt asset - temporary order. The temporary order allows an institutional investor to revalue the investment in a non-marketable debt asset, made from January 1, 2009, and up to December 31, 2009, in line with the risk margin and current revaluation mechanism according to its fair value, determined by the proper organ, or alternatively to classify the investment as loans and accounts receivable and to revalue them accordingly, subject to the following conditions: (a) the mechanism will be established at the time of the transaction and may not be changed during the life of the investment until its redemption or exercise date; (b) the investment committee must, at least once a quarter, discuss changes that have occurred in the risk margins; (c) adjustments must be made when information is available indicating that the risk margin does not reflect the borrower's risk level or there is concern regarding collection of the cash flow anticipated from the asset. 1.9.1.28 On February 24, 2009, the Commissioner published a circular concerning the publication of financial statements by the insurance companies and pension funds. The circular stipulates that insurance companies and pension funds must publish the data from their financial statements in the press in the necessary format, according to an appendix to the circular, where the publication shall include a link to the website of the insurance company or pension fund, the font size shall be a reasonable size and the data shall be published no later than 10 days after the board of directors has published the financial statements, starting with the annual report in respect of the year ending December 31, 2008. Insurance companies must publish their annual financial statement and their interim financial statement in the press, and pension funds must publish their annual financial statements in the press. 1.9.1.29 On February 16, 2009, the Commissioner published a circular concerning the structure of the required disclosure in the insurance companies' financial statements, pursuant to IFRS which prescribed the following provisions: (a) starting with the financial reports for 2008, the required disclosure structure shall be in accordance with the appendix to the circular. The reports shall include, at the very least, the items listed in the detailed structure; (b) comparative numbers - to the balance sheet notes comparative numbers in respect of the previous year shall be added, and for the performance notes comparative numbers shall be added for the two previous years.

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Nevertheless, for the financial statements for 2008, comparative information for one year only can be included; (c) everything mentioned in the circular (except the appendix regarding solo reports) applies to consolidated statements only; (d) the note tables shall include the information included in the comments attached to the notes that appear in the circular; (e) the board of directors' report shall include information concerning an impairment of financial assets, as specified in FAQ 14. Pursuant to the aforementioned circular, on May 19, 2009, the Commissioner published a circular concerning the structure of the disclosure required in the related reports published by insurance companies starting with the related reports to the first quarter of 2009 and forward.One of the main changes in this circular is the method of reporting the activity of insurance companies' health insurance activity, in view of the change in the method of classifying this sector among the different sectors in the different companies. On November 16, 2009, the Commissioner published draft circulars which change and expand the provisions for the accompanying reports set forth in the above circular, as follows: (a) a draft circular concerning changes in the related reports - the quarterly reports to the Commissioner shall include reports on the operating segments - solo report. The reports included in the notes to the accounts shall remain at annual level. Furthermore, as part of the quarterly reports, a report shall be added on a note on the operating segments assets and liabilities - solo; (b) a draft circular concerning an increased disclosure in the accompanying reports - provisions were prescribed concerning the format of the reporting required in Form 2 (non-life insurance business) and in Form 15 (health insurance business); (c) a draft circular concerning the format of the reporting required for health insurance (which cancels Insurance Circular 2002/11 - increased reporting in health insurance, and Insurance Circular 2004/3 - health insurance in non-life and life insurance (Form 7) - update). The draft circular includes a revision of the provisions pertaining to the structure of the reporting required in Form 7. In this form, reports must be submitted on stand- alone policies and riders, unrelated to their classification in the company's operating segments, policies which consist of several forms of cover must be split between the different columns depending on their coverages, provisions were prescribed regarding determining the number of insureds at the end of the year and regarding profit sharing in life insurance. The changes shall apply from the accompanying reports for 2009 onwards. The Commissioner and the financial institutions are discussing the draft circulars. Draft circulars 1.9.1.30 On November 11, 2009, the Commissioner published a draft circular concerning the receiving of payment or benefit from a service provider. The draft circular specifies that an insurance agent who recommends or refers his customers to a service provider, who recommends a service provider to a customer, or is involved in the process of choosing the service provider, shall operate for the good of the customer only, and using his professional discretion. An insurance agent shall not accept any payment or other form of benefit on account of referring a customer to a service provider. Furthermore, a financial institution shall not offer an insurance agent any payment or other form of benefit on account of referring a customer to a service provider. The Commissioner and the financial institutions are discussing the draft circular. 1.9.1.31 On November 3, 2009, the Commissioner published a draft circular concerning the composition of an insurer's recognized shareholders' equity. The draft circular prescribes that an insurer's recognized shareholders' equity shall consist of three pillars, with different characteristics, as specified in the circular. The three pillars

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are: (a) first - the principle pillar on which the insurer must base itself. This pillar absorbs losses during the normal course of the insurer's business and in the event of insolvency or liquidation; (b) second pillar - the purpose of this pillar is to absorb losses during the course of insolvency or liquidation. It is also designed to absorb losses in a state of a going concern and to prevent further deterioration during periods of pressure; (c) third pillar – its main purpose is to absorb losses during insolvency or liquidation. The various components of the capital will be classified by their features, according to the following criteria: a) the degree of subordination of the component relative to other components; (b) the extent to which the component is capable of absorbing the losses; (c) the constancy of the capital component; (d) the presence or absence of additional conditions and restrictions in the capital component. The draft circular prescribes that the capital required on account of holdings in insurance companies and controlled management companies, and on account of deferred acquisition costs according to the Capital Regulations, shall be financed through primary capital components only. The insurer's recognized shareholders' equity is the sum of balance sheet and off balance sheet capital components, at the rates and conditions prescribed in the draft circular. The draft circular also prescribes that any capital component that is included in an insurer's recognized equity, excluding components listed in the regulations and basic primary capital components as defined in this circular, must be approved by the Commissioner and that the insurer is responsible to review and ascertain that the capital component is classified under the appropriate pillar, according to the principles and definitions prescribed in the draft circular. An insurer shall submit for the approval of the Commissioner, any plan to issue a capital component three months before the expected date of the issue, and it shall inform the Commissioner three months before any maturity date of a capital component. The draft circular prescribes transitory provisions whereby the total basic equity shall not fall below the amount that it was immediately prior to publication of the circular. The Commissioner and the insurance companies are discussing the draft circular. 1.9.1.32 On September 3, 2009, the Commissioner published a draft circular concerning the investments made by financial institutions in non-government bonds. The draft circular regulates the provisions of the interim report of the committee to determine parameters for institutional bodies that extend credit through the acquisition of non- government bonds ("Hodak Committee"). The draft circular stipulates that an institutional body must prepare a written, signed analysis recommending whether or not to purchase the bond being offered (marketable and non-marketable bonds). The analysis shall be prepared based on an analysis of financial reports for a period of at least three years and it shall address the parameters prescribed in the draft circular. An institutional body shall be entitled to invest in bonds according to the following conditions: (a) if it received prior documented approval from the investment committee or the credit committee, as the case may be. Such approval is required only if the group of investors intends to invest at least NIS 25 million in bonds and if the group invests more than 0.1% of its total assets in bonds; (b) when the non- marketable bonds include a commitment by the issuer to register the bond with a Registration Bureau; (c) if all the documents listed in the draft circular were received before the issue; (d) if the bond documents include the contractual conditions and minimum criteria which appear in an appendix to the draft circular. The draft circular prescribes conditions for obtaining information before the bond issue and immediate and on-going information during the life of the bond from a non-reporting corporation. A financial institution shall not be entitled to invest in a non-marketable bond which does not address the subject of the trustee's expenses. When establishing its investment policy in non-government bonds, the investment committee shall review the rate and scope of the investment in the bonds based on three fundamental

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categories: a guaranteed debt, a senior non-guaranteed debt, and a subordinated non- guaranteed debt. In this context, the investment committee shall also address the quality of the contractual conditions and financial criteria included in the deed of trust. The Commissioner and the financial institutions are discussing the draft circular. 1.9.1.33 On September 8, 2009, a draft circular was published concerning a procedure for locating members and beneficiaries. The purpose of the circular is to create an effective mechanism which can be easily implemented by the financial institutions for locating members with whom contact has been lost and with beneficiaries after the death of the member, as well as to inform members and beneficiaries that money exists to which they are entitled. The draft circular prescribes that the financial institution must establish detailed work procedures for locating members with whom contact has been lost and for locating the beneficiaries of deceased members, where the time period for undertaking such action shall be no more than one year. The board of directors must approve a procedure for locating members and appoint an entity responsible for implementing the provisions.The circular prescribes rules for the transfer of money to the Administrator General, including an affidavit to be submitted to the Administrator General by the general manager (CEO), stating that the financial institution has taken all necessary action. Furthermore, the financial institution must send the Superintendent a computerized annual report about members with whom contact has been lost and about deceased members as specified in the draft circular, and it must also publish on its website a user interface enabling members with whom contact has been lost to check whether the financial institution has money belonging to the member. Together with the draft circular, draft Control of Financial Services (Provident Funds) (Locating Members and Beneficiaries) Regulations, 5769-2009, were published. Accordingly, a financial institution must contact the Interior Ministry's Population Registry each quarter to obtain basic details of the identity of its members and to check and investigate the information, including contacting various entities which may have such information, to locate members with whom contact has been lost - a member whose address to which mail has been sent meets the definition of returning mail as defined in the regulations, or a member whose account in the fund is dormant (as this term is defined in the regulations). Where the financial institution has been informed of the death of a member, the financial institution must contact the beneficiaries within a month. The regulations prescribe the conditions for transferring to the Administrator General any money that has accrued in the account of a member with whom contact has been lost, as well as the conditions for collecting management fees at a monthly rate that does not exceed one twelfth of 0.1%, from six months after contact has been lost with the member. The Commissioner and the financial institutions are discussing the draft circular and regulations. 1.9.1.34 On August 4, 2009, the Commissioner published a draft circular concerning working using a suspense account and the prevention of front running. The draft circular stipulates that financial institutions from the same group are entitled to work using a joint suspense account, subject to arrangements to prevent conflicts of interests and to the approval of the board of directors of each of the entities for the joint management agreements. The investment committee must determine a procedure that specifies the main points of the policy concerning management of the suspense account. All stock exchange instructions shall be split proportionately on the same day of trade between the managed portfolios, where the manner of determining the proportional allocation shall be determined in advance in the procedure. Prevention

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of front running - a financial institution that performs a transaction in an investment asset in the light of advance information (that is not from public sources) concerning an anticipated transaction in an investment asset of another entity (including another account of the financial institution or of an associate entity) is in violation of the fiduciary obligation. Furthermore, an employee of a financial institution who performs a transaction in an asset for himself or for another person who has given him information, in the light of such advance information, is in breach of his fiduciary obligation to the financial institution and to the institution's members. The investment committee must establish a procedure to prevent front running. The Commissioner and the financial institutions are discussing the draft circular. 1.9.1.35 On June 12, 2009, the Commissioner published a draft circular concerning the management of information technology by financial institutions. The draft circular prescribes the following provisions: (a) information technology governance - a financial institution's board of directors must discuss, at least once every six months, the subject of information technology to formulate policy and strategy in this area and to approve an annual and long-term work plan; management shall formulate a work plan and oversight, shall appoint an IT manager to manage and oversee the IT assets; (b) control and oversight - the board of directors must approve an overall control framework, establish control goals and ensure that reasonable control and oversight mechanisms are in place; (c) ensuring compliance – the financial institution must work to ensure that proper processes are in place to meet the compliance requirements in the area of information technology, shall define an entity responsible for implementing the compliance instructions and report on their implementation and shall conduct a compliance review on this subject; (d) management of the information technology risks - the financial institution must formulate an information technology risk procedure and appoint entities to be responsible for implementing and maintaining the plan; (e) information controls and data management - the financial institution must set in place and operate an appropriate internal control system for the information and data that form the basis of the organizational and business information; (f) procurement and projects - the board of directors must establish policy and guidelines for implementing key procurement and projects, and for implementing control and oversight. Management must define a work framework for project management; (g) changes management - there must be a proper system for managing changes in the information systems that includes procedures and rules for performing changes, including emergency change; (h) outsourcing - establishing principles and work procedures to guarantee proper management of the processes performed by outsourcing, being aware of the threats and exposures; responsibility of management and the board of directors; instructions regarding the choice of service providers; standards of service and operations; on- going detection; (i) internal auditing - it must be ensured that the internal audit system has the know-how, experience and resources to perform an audit of the information technology and to perform an audit of compliance with instructions. Management and the board of directors must inform the internal auditor when committees dealing with this subject meet, of the agenda for the meeting, and the internal auditor shall be entitled to participate in meetings as he sees fit. The Commissioner and the financial institutions are discussing the draft circular. 1.9.1.36 On May 12, 2009, the Commissioner published a draft circular concerning an agreement between an institutional entity and a licensee (the circular will void the existing circular regarding "an agreement between an insurer and an insurance agent" - circular 2004/14). The purpose of the draft circular is to prescribe provisions regulating the obligation to enter into agreement between an institutional entity and an agent and pension advisor ("licensee") which the institutional entity works with.

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The draft circular stipulates that an institutional entity shall enter into agreement with a licensee only by written agreement that includes provisions concerning the method of transferring the deposits according to the options set forth in the draft circular, including calculating the allocation of investment profits that are accrued in the trust accounts. The deposits that the licensee collects, including investment profit earned on the deposits in the trust account, belong in full to the institutional entity and the deposits shall be deemed to have been received directly in the account of the institutional entity's insurer. The licensee shall not delay these amounts nor shall he deduct from them amounts that he is entitled to receive from the institutional entity. The agreement may specify that the deposits will be transferred directly from the insured to the institutional entity, or they may be transferred to a trust account of the licensee in favor of the institutional entity. Moreover, provisions were set concerning the method of managing the trust account and the rules that apply to the account, as well as three alternatives for opening a trust account: a separate trust account for each institutional entity, a suspense account managed by a trustee, and a suspense account managed by the licensee. The Commissioner and the institutional entities are discussing the draft circular. Draft regulations 1.9.1.37 On September 13, 2009, the Commissioner published draft Control of Financial Services (Provident Funds) (Distribution Fees) (Amendment) Regulations, 5769- 2009. The amendment adds a definition regarding a "management company" which is a licensed management company in respect of a provident fund that is not an insurance fund that it manages, and to an insurer with respect to an insurance fund that it manages. The definition of a" provident fund" was extended to include an annuity paying provident fund, a fund that does not pay an annuity, a compensation provident fund and a personal severance pay fund that are insurance funds. The draft further prescribes that no distribution fee will be paid for amounts that a customer has to his credit in a provident fund, the source of which is payments deposited in a guaranteed-yield insurance fund up to December 31, 1991. The Commissioner and the financial institutions are discussing the draft regulations. 1.9.2 Life assurance and long-term savings The Commissioner's policy in the wake of the crisis in the capital market 1.9.2.1 On March 24, 2009, the Commissioner published a document detailing a series of measures that he intends to introduce in the pension savings market, following events in the global crisis. The following details the main points of these measures: A. The investment risk will be correlated with the customer's characteristics (implementation of the Chilean model): (I) the entities will be obliged to establish investment tracks that are a default option and will correspond with the saver's characteristics; (II) the general tracks will be cancelled. Subsequently, in July 2009 the Commissioner published a draft circular and draft regulations concerning adapting the pension savings track to the member's characteristics - see par. 1.9.2.23 below. B. The number of investment tracks in pension savings products will be reduced: (I) the general tracks will be eliminated; (II) tracks with a similar mix will be merged. Subsequently, the Economic Arrangements for 2009 that was enacted on July 2009, included Amendment no. 4 to the Control of Financial Services (Provident Funds) Law, 5765-2005, whereby from January 1, 2011, a provident fund management company shall no longer manage more than one provident fund of each category of the provident funds listed in the law. This provision will not apply to individual retirement accounts that guarantee a

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fixed or minimum yield, to central annuity provident funds or to a provident fund which, according to its articles, restricts enrollment to a particular sector. C. There will be a shift to publishing the annual yield for pension savings products: (I) yields for a period of less than 12 months shall not be published; (II) data on Gemel Net, Pension Net and Insurance Net will be revised accordingly. Subsequently, in July 2009, the Commissioner published a draft circular concerning the publication of yields for financial institutions - see par. 1.9.2.22. D. Companies will be obligated to report management fees in the quarterly report sent to members, similar to the reporting that now exists in the annual report. Subsequently, in November 2009, the Commissioner published a circular concerning amendments to the quarterly report to members and insureds. - see par. 1.9.2.8. E. Standards will be set for the financial institutions' customer service systems: (I) timetables will be defined for replying to savers' requests; (II) policyholders will receive written confirmation that transactions have been performed; (III) information must be saved and documented. F. The projected investment policy must be publicized, including benchmark indices that the institutions wish to attain. A change of policy must be updated in the quarterly reporting to members. Subsequently, in July 2009, the Commissioner published a circular concerning a statement on investment policy to be issued in advance by a financial institution - see par. 1.9.1.16. G. Individually managed retirement accounts (IRA) will be introduced. Subsequently, in July 2009 the Commissioner published draft Control of Financial Services (Provident Funds) (Individual Retirement Accounts) Regulations, 5769-2009 - see par. 1.9.2.25. H. Compensation paid to investment managers shall be commensurate with the long-term performance of the financial institutions: (I) a compensation policy for investment managers and those engaged in investments must be established, based on long-term performance; (II) the audit committee shall ensure that the compensation policy is appropriate for the type of investment; Subsequently, in July 2009, the Commissioner published a draft circular concerning the policy of compensation (remuneration) among financial institutions - see par. 1.9.1.10. I. The decision making process must be improved regarding investments in corporate bonds: (I) subjects shall be determined that the financial institution must discuss before making the investment; (II) the data and information that the issuing company must provide, for private issues as well, is to be determined; (III) the investment shall be made based on an internal analysis prepared by the financial institution, without relying exclusively on the rating; (IV) a deed of trust must be formulated to include qualitative and quantitative parameters; (V) the ability to repay marketable bonds must be constantly monitored. J. The control and monitoring mechanisms for investment management and risk management are to be strengthened: (I) the investment committees' obligation to supervise the investment managers shall be expanded; (II) the professional qualifications required of investment committee members shall be increased as well as the number of committee members; (III) the requirement for

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independence and an absence of a conflict of interest by members of the investment committee shall be tightened. K. The equity requirements for insurance companies shall be increased 30% over the next four years, and the ability to distribute dividends to controlling shareholders shall be severely curtailed over the next two years. L. The requirements for shareholders' equity for provident and pension fund management companies will be raised, in line with the volume of assets under management. M. Amalgamation and tightening of the investment regulations that apply to institutional entities: (I) the regulations shall be amalgamated in one collection; (II) quantitative restrictions shall be added regarding investment in different sectors of the economy and in companies under the same control; (III) the restrictions that apply to transactions with associates shall be tightened. N. Tightening of the investment rules for the insurance companies nostro money: the average duration of life for assets shall correspond with the average duration of life for the liabilities, and maximum rates of exposure shall be set for investing in shares or assets that do not correspond with the nature of insurance companies' liabilities held against those assets. Other provisions of law 1.9.2.2 On November 10, 2009, the Commissioner published a decision in principle draft concerning compensation for a delay in withdrawing money or for a delay in transferring money between provident funds or investment tracks. The draft ruling prescribed the following: (a) in the event of a delay in performing the withdrawal of money from a provident fund, the management company must pay the member, in addition to interest in arrears as stipulated in Article 41q1 of the Income Tax (Rules for the Approval and Management of Provident Funds) Regulations, 5724-1964, the following amounts: (a) If the total yields during the delayed period are negative - the amount accrued to the member's credit as it should have been paid on the date set for payment of payment of the money, if the total yields during the delayed period are positive - the amount accrued to the member's credit up to the actual date of paying the money; (b) in the event of a delay in transferring money between provident funds after October 1, 2008, the management company must: (i) pay interest in arrears for the period of the delay; (ii) transfer the amount that was actually in the member's account on the transfer date (including any loss or profit); (iii) if the difference between the yield in the receiving fund and the yield in the transferring fund is positive, then the receiving fund shall credit the positive difference to the member's account. (c) if there was a delay in transferring money between provident funds before October 1, 2008, and in the event of a delay in transferring money between tracks, the management company shall pay the member: (i) if the yield in the receiving fund is higher than the yield attained by the transferring fund during the period of delay - the member is entitled to compensation for the loss he suffered, but no more than the interest in arrears; (ii) if the member suffers no loss due to the delay - the member is entitled to receive the money that was in his account on the transfer date and the interest in arrears. In addition, the draft ruling stipulates that the date for receiving a request to transfer or withdraw money shall be considered the date on which the member submitted his application to the pension marketer, and an institutional entity shall not collect management fees on account of money that it managed during the period of delay. The institutional entities must implement the aforementioned instructions in respect of requests received from January 1, 2007, including requests that were sent for clarification to the public complaints unit of the

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Capital Market Division, and money that was not paid according to the above instructions must be transferred, or management fees collected not in accordance with the aforementioned instructions, must be refunded within 45 days of the ruling taking effect. Furthermore, the management company must inform the members of the ruling and of their subsequent rights, including the method of calculating the compensation. The financial institutions and the Commissioner are discussing the draft instruction. 1.9.2.3 The Economic Arrangements Law for 2009 which was passed in July 2009 contains the following amendments to the Income Tax Ordinance [New Version]: A. From July 1, 2009, capital gains tax in respect of deposits that were made in provident funds during the period 2003-2007 was abolished. B. From August 1, 2009, and up to August 1, 2011, a provident fund shall be exempt from tax on income from a business that it does not control and/or in which does not have a significant stake, even when, subsequent to a debt arrangement, the provident fund gains the means of control, directly or indirectly, of a body of persons, provided that the conditions set forth by the Minister of Finance and approved by the Knesset Finance Committee, are met for the purpose of increasing the provident fund's ability to direct the activity of the group of people, including provisions concerning a reduction in the rate of holding in that body of persons during a defined period. The amendment will take effect when the regulations to be prescribed by the Minister of Finance become applicable. 1.9.2.4 On March 2, 2009, Control of Financial Services (Provident Funds) (Sale and acquisition of securities) Regulations, 5769-2009, were published. The Regulations place restrictions on the acquisition of securities by institutional investors whose related parties market the securities issue or serve as an underwriter or distributor participating in the issue. Accordingly, the institutional investors are entitled to acquire up to 5% of the quantity of the securities sold in the offering, or up to 10% if the value of the assets managed by the institutional investors together is more than NIS 10 billion. The acquisitions are subject to obtaining the advance approval of two thirds of the outside representatives on the investment committee (until December 31, 2009, these rates are 7.5% and 15% respectively). Moreover, the Regulations prescribe that securities shall be acquired and sold according to a competitive process to take place at least once every three years among at least four participants, and that at an institutional investor may not acquire or sell securities through a related party (until December 31, 2009, an institutional investor may acquire or sell through a related party, provided that the commissions are no more than 20% of all the commissions that the institutional investor paid during the course of the year). 1.9.2.5 On February 25, 2009, the Control of Financial Services (Provident funds) (Government protection for pension savings) Regulations (Temporary Order), 5769- 2009 were published. The Regulations are designed to protect the money of insureds close to retirement age against investment losses from their savings, against the background of the capital market crisis in Israel and worldwide in 2008, and based on a government decision on this subject from December 14, 2008. According to the Regulations, the entitlement to protection is contingent on the following conditions: (1) the member has reached the age of retirement and at least 3 years have elapsed since 14.12.2008 ("date of the onset of the arrangement"); (2) the member's total pension savings, from all the capital pension sources on the date of the onset of the arrangement, is no more than NIS 1.5 millions; (3) the protected savings (money accrued to the member's credit in an annuity provident fund and in a

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pension provident fund, excluding a central annuity provident fund, an old fund, and a guaranteed yield provident fund, and from which immediately prior to the effective date he began to receive an annuity) shall be transferred to an annuity paying provident fund or shall remain in an annuity paying provident fund, as the case may be, and shall be used by the member immediately after the date of exercising the arrangement to receive an annuity only; (4) the member has submitted an application and proved his entitlement according to the Regulations.

The protection shall be in the amount of the positive difference, insofar as such exists, on the dates of exercising the arrangement, between the protected amount, linked to the Consumer Price Index known at November 30, 2008 ("the Effective Date"), and the higher of the following (and under no circumstances shall it be higher than the ceiling prescribed in this instance): (a) the protected amount, plus or minus the gross yield credited to the member for the period commencing on the effective date and up to the date of exercising the arrangement; (b) the protected amount plus or minus the difference between indicator index (an index to be published by the Commissioner, based on the weighted average of the gross yields attained by all the annuity provident funds and the pension provident funds in the track in which most of the money is managed), on the date of exercising the arrangement and the indicator index on the effective date.

Furthermore, the following conditions were also prescribed: • No protection shall be given for money that was withdrawn before the arrangement's exercise date, for money on account of which the member began to receive an annuity before the arrangement's exercise date, or for money that was withdrawn not by way of an annuity after the arrangement exercise date, however it shall be taken into account for the purpose of calculating the pension savings. Exceptions were defined with respect to a person who reaches retirement age before three years have elapsed from the onset of the arrangement and when present such a person shall be entitled to benefit from protection for the money that was withdrawn. One who has reached retirement age and started receiving an annuity from an annuity provident fund after the effective date, and before three years have elapsed from the onset of the arrangement, shall be entitled to protection, with certain changes mandated by the fact that he has already started to receive an annuity on the arrangement's exercise date. • No protection shall be given for money that was deposited after the effective date, however it shall be taken into account for the purpose of calculating the total pension savings. • Conditions were prescribed, which when met, the arrangement shall apply to a person who reached the age of 67 before the effective date. • A management company of provident fund for pension or for annuity shall save the data on the amount accrued in the fund to the credit of each member, at the effective date, for members who by December 13, 2011 are 60 years old, as well as data on the gross yield credited or debited to members, from November 30, 2007. The Regulations will be in force until December 13, 2018.

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At this stage it is impossible to estimate the effect of the safety net on the public's behavior or on the Company. The safety net may lower the amount of protected money withdrawn by those entitled to protection, and this should the capital market crisis continue in a manner that the yields actually attained are lower than the minimum yield guaranteed by the safety net. The information concerning all aspects of the possible repercussions of the safety net on the Company is forward looking information, based on the Group's estimates and assumptions at the date of publishing the report. Actual implementation may differ substantially from the forecast, and this, in part, in view of the changing situation in the markets, choices made by members and policyholders, their conduct, and the supplementary arrangements prescribed in this instance. 1.9.2.6 On February 25, 2009, Control of Financial Services (Provident Funds) (Calculating the value of assets) Regulations, 5769-2009, were published. The Regulations prescribe that a financial institution shall calculate the value of the provident fund assets that it manages and of the assets that it manages to cover yield-dependent assets on each business day for the previous day's business, according to the method for calculating the value of the assets defined in the Regulations. Furthermore, it was determined that the value of the assets shall be calculated less a reserve for tax, and for other assets that are not marketable securities - less estimated realization expenses as well. The value of assets from overseas shall be translated into shekels at the representative exchange rate. Assets whose value is to be calculated at the last day of each month were also prescribed. Moreover, the Commissioner may instruct an institutional entity to calculate the value of assets regarding which he believes that a transaction was performed based on non-economic considerations in an effort to improve performance, in a manner that cancels out such improved performance. 1.9.2.7 On February 11, 2009, Income Tax (Extension of the payment period to provident funds) (Temporary Order) Regulations, 5769-2009, were published. Pursuant to the Regulations, the date for self-employed members to make deposits in respect of the 2008 tax year for provident funds (including education funds) and life assurance, was extended until the end of February 2009, provided that the member submits an application to this effect to the institutional entity by April 1, 2009. Circulars 1.9.2.8 On November 24, 2009, the Commissioner published a circular concerning adjustment of the annual and quarterly reporting issued to members and policyholders. The circular contains provisions for adapting the annual and quarterly reports to the principle change noted in Amendment no. 3 to the Control of Financial Services (Provident Funds) Law, 5765-2005, which directs money deposited in pension savings from January 1, 2008 to annuity, and eliminates capital gains tax in respect of interest and profits accrued in pension provident funds as prescribed in the Economic Efficiency (Legislative Amendments for Implementing the Economic Plan for the years 2009 and 2010) Law, (see par. 1.9.2.3). The circular will apply to provident funds management companies and to the insurance companies that operate in the life-assurance sector, from the annual report in respect of 2009. 1.9.2.9 On November 23, 2009, the Commissioner published a circular concerning amendments to quarterly reports issued to members and policyholders (the circular amends the provisions of Circular 2007-9-1 issued to financial institutions - Quarterly Reporting to Members and Policyholders). The purpose of the circular is to expand the details given to savers as part of the quarterly reporting and through the information retrieval service on the internet, as follows: (a)the following information shall be added to the quarterly report sent to holders of life insurance which includes a savings component, to members of a pension provident fund and of

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severance pay funds which are not insurance funds, and of study funds, to insureds in new comprehensive pension funds and general pension funds: a list of the management fees actually collected in the insurance policies from the member/insured, the management fees will be presented on an annual basis and the amount of the management fees according to the amount actually collected up to the end of the reported quarter, and the report shall also mention to which period each figure applies. The gross yield attained by the fund / pension fund on its assets / policyholders' assets, respectively up to the end of the reported quarter; (b) in the quarterly report sent to members of benefit and severance pay provident funds that are not insurance funds, and of study funds and to those insured through new comprehensive pension funds and general pension funds, the rate of the management fees that the fund actually collected from its total assets / that the fund collected on average from the total assets of policyholders and from the average contributions, up to the end of that quarter, shall be added. Moreover, the circular stipulates that a financial institution shall not be obliged to send a quarterly report to members / policyholders who did not make deposits in the fund/policy during the relevant quarter, provided that the balance of their accrued savings is less than NIS 50,000. The circular will apply to all financial institutions from the report for the first quarter of 2010. 1.9.2.10 On November 23, 2009, the Commissioner published a draft circular concerning a mechanism for collecting management fees. The circular prescribes that a financial institution may collect management fees in consecutive payments at the end of each month or at the end of each business day, as the institution chooses, in line with the current rate of management fees agreed with the member or the insured, and it shall not use a mechanism based on the refund of management fees at the end of a period exceeding a month. The circular is applicable from April 1, 2010. Regarding the management fees mechanism which was agreed upon before the circular was published, application shall be on January 1, 2012 or at the end of the agreement period - whichever is earlier but not before April 1, 2010. Furthermore, the circular shall not apply to insurance plans which include a mechanism based on the refund of management fees that were approved by the Commissioner before the publication of the circular. 1.9.2.11 On August 18, 2009, the Commissioner published a circular concerning a limited uniform structure for transferring information from a financial institution to a licensee (advisor or pension agent). The purpose of the circular is to regulate the process of transferring information between a financial institution and a licensee for carrying out pension advice or pension marketing and for on-going pension advice. The circular prescribes that the information shall be transferred within 3 business days, at the least it shall contain the information required under Appendix A to the draft circular and it shall be given only after the licensee has received a valid power of attorney from the customer. Moreover, the information to be submitted shall be the most up to date where the revision date shall be up to the 20 th of the month in respect of the previous month. As long as a pension advice agreement is in force between the pension advisor and the customer and the power of attorney is in force, the financial institution shall transfer the information noted in Appendix A to the pension advisor every quarter on the date on which the quarterly or annual report is sent to the customer. The circular shall apply from February 1, 2010. 1.9.2.12 In August 16, 2009, the Commissioner published a circular concerning provisions for calculating the value of a financial institution's non-marketable assets. The circular prescribes that the non-marketable assets shall be presented at their fair value, according to the instructions for calculating their value as specified in the circular, and it also prescribes provisions for calculating the value of an asset

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marketed through market makers. The circular further prescribes that the financial institution's investment committee must ensure that there is an on-going control system and audit system in place for calculating the value of the assets and that the assessed value is up to date. The provisions of the circular apply to management companies and the provident funds that they manage, old pension funds and the yield-dependent policies portfolio of the insurance companies. 1.9.2.13 On August 9, 2009, the Commissioner published a circular concerning the management system and risk control in provident fund management companies. The circular stipulates that a management company shall set up a risk control and management unit and shall appoint a risk manager for the unit who has proven expertise and experience in this area, who shall be a member of management accountable to the CEO. The risk manager shall give the investment committee his opinion concerning existing and potential risks in a provident fund's investment assets portfolio for the purpose of establishing and updating the investment policy for the fund handled by the investment committee and for adapting the investment policy to the company's stated policy with respect to that fund. The circular defines the actions that the risk manager must take to identify the risks, estimate their effect and way of managing them. Furthermore, the risk manager shall submit immediate reports to the CEO, to the management company's investment committee and board of directors concerning a material deviation from the investment risk management policy that has not yet been amended. Once a quarter, the risk manager shall submit a report containing an explanation of the measurement tools used and an estimate of the risk entailed in its use, problems with the wholeness of the data, an explanation of the types of assets included in the measurement tool in use, a description of the exposures to the risks identified, the degree to which the exposures actually correspond with the investment policy, a description of the controls, the reports and the measures that the company has in place for measuring, tracking and limiting the risks, and recommendations for improvement. The circular shall apply from January 1, 2010. 1.9.2.14 On July 30, 2009, the Commissioner published a circular amending a circular regulating the enrollment of members in a provident fund with regard to an employer's signature on the fund's enrollment documents. The amendment eliminates the obligation that requires the employer to sign an enrollment form for a provident fund (par. 3.8 to Provident Circular 2005-2-5), leaving in place only a requirement to specify the employer's name and address with respect to a salaried member. The circular applies to provident funds that do not pay an annuity and to study funds. The circular shall apply from its publication date. 1.9.2.15 On May 7, 2009, the Commissioner published a circular concerning the transfer of members non-cash rights. Pursuant to the circular, members' non-cash rights may be transferred only if the total assets transferred on that business day from one provident fund to another or from one investment track to another, in a multi-track provident funds, are more than NIS 5 million or more than 1% of the assets of the transferring fund or the transferring track, whichever is lower. The institutional entities' investment committee must establish a detailed work procedure of the way and conditions in which it will transfer members' non-cash rights. The principles of the procedure shall be published on the institution's website. Moreover, before any transfer of members' non-cash rights, the institutional entity's investment manager shall submit a detailed, written proposal to the investment committee regarding the intention to transfer the non-cash rights of members. Within the context of the annual audit plan, the internal auditor shall review the transfer of members' non-cash rights. The circular shall apply from its publication date.

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1.9.2.16 On April 5, 2009, the Commissioner published a circular concerning principles for dealing with members who joined the new pension fund management companies during the January - March 1995. According to the circular, before May 31, 2009, the new pension fund management companies must contact all the Interim Period Members whose money is managed in a new pension fund without them having chosen this option, and allow them to choose to be insured in the old pension fund that they joined in 1995 or the new fund that manages their money. Any member whose explicit choice is not received at the offices of the new pension fund management company by June 30, 2009, shall be considered as wishing to be insured in the old pension fund. The circular regulates the dates on which the money is to be transferred, the method of transferring the data and reporting to the members who are to be associated to an old pension fund. The provisions of the circular apply from its date of publication and it applies to funds that have not previously contacted Interim Period Members for the purpose of making such a choice, in accordance with the Commissioner's instructions. 1.9.2.17 On February 17, 2009, the Commissioner published a circular concerning an annual report regarding upholding the provisions of the law by a provident fund (formerly Form no.15) - clarification. The circular prescribes that a management company shall submit the report as required in the provisions of the circular, in concentrated form for each class of provident fund that it manages (pension provident funds, severance pay provident funds, education funds, and provident funds for any other purpose). This is in contrast with current practice where the report is submitted for each provident fund separately. Where the management company is required to address a specific fund in the report, its name and number must be included in each relevant clause. The circular shall apply starting with the financial statements for 2008 and forward. 1.9.2.18 On February 9, 2009, the Commissioner published a circular concerning the contents of an explanatory document and submitting the document to the customer. The Pension Advice and Marketing Law requires a licensee to tailor the pension advice or marketing to the needs of each customer and to choose the type of pension product, the pension product and the institutional entity most suited to the customer, and this after clarifying with the customer the goals of his savings through the pension product, his general financial situation, his existing savings through pension products and any other circumstances that should be of interest, inasmuch as the customer agrees to provide such information. Moreover, when making the recommendation the law requires the licensee to give the customer, a written document specifying the reasons for its recommendation concerning the reasonability of his savings or those of his relative through a pension product. The draft circular includes details of the method of preparing the explanatory document, the minimum information that it must contain, the time period in which the licensee must keep a copy of the explanatory document and the institutional entity's obligation to receive a copy of the explanatory document that is signed by the customer before he enrolls in the pension product. Moreover, the financial institution must perform random checks regarding customers that have been enrolled by a licensee who is an insurance agent and whether the recruiting process was performed in accordance with the provisions of the circular. Pursuant the Commissioner updating dated July 8, 2009, the circular will take effect on January 2010.

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Draft circulars 1.9.2.19 On October 13, 2009, the Commissioner published a second draft circular concerning the coding of pension savings products. The draft circular prescribes a uniform method of coding for the pension savings products and that the financial institution must specify the pension product code in any report, including reports to members, to other financial institutions, to employers, arrangement managers, insurance agents or pension advisors and in any other publication including on the website. The Commissioner and the financial institutions are discussing the draft circular. 1.9.2.20 On October 1, 2009, the Commissioner published a draft circular concerning the collection of statistical information incidental to handling requests to withdraw and transfer money. The draft circular determines that the financial institution must collect and save data pertaining to the previous year's requests according to the appendix to the draft circular. The draft circular applies to requests to transfer money from one provident fund to another, requests to withdraw money from a provident fund or from a combined life-insurance and savings plan which is not an insurance fund, not by way of an annuity, and to requests to receive an old-age pension from an annuity paying provident fund or from a combined life-insurance and savings plan which is not an insurance fund. The financial institution must report the information contained in the requests to the Commissioner no later than March 31 in respect of the previous year. Furthermore, data pertaining to the requests must appear on the financial institution's website for at least the last four years. The Commissioner and the financial institutions are discussing the draft circular. 1.9.2.21 On August 4, 2009, the Commissioner published a draft circular concerning rules for the approval of investment tracks in pension savings products. The circular will cancel the existing circulars regarding the names of investment tracks and provident funds - Provident Circular 2003/10 and Insurance Circular 2003/15. The draft circular prescribes that a financial institution shall not manage specialist investment tracks in each pension product unless the tracks differ significantly from one another. A financial institution may manage a specialist investment track provided that the exposure to the investment channel included in that track is at least 75% of the value of the track's assets. The name of the default track (regarding default tracks, see par. 1.9.2.23) shall specify the range of ages to which the track applies. The circular also specifies additional restrictions regarding the names of investment tracks. A financial institution shall adapt the investment tracks that do not comply with the provisions of the circular by January 1, 2011. The Commissioner and the financial institutions are discussing the draft circular. 1.9.2.22 On July 19, 2009, the Commissioner published a draft circular concerning rules for the publication of yields by financial institutions. The draft circular prescribes changes in the rules for publication of the yields, the main points of which are: (a) only an annual yield must be published; (b) when publishing the yield for an investment track, the financial institution must publish the average annual yield for that investment track for the last three and five years; (c) when publishing the yield for an investment track, the financial institution must publish the risk index for that investment track over a five-years period; (d) the circular applies to pension insurance agents. These changes shall take effect from January 1, 2010. The Commissioner and the financial institutions are discussing the draft circular. 1.9.2.23 On July 8, 2009, the Commissioner published a draft circular concerning adapting a savings track to the member's characteristics. The draft circular prescribes that the financial institution's board of directors shall, by January 1, 2010, define a model for categorizing the members of the provident funds that it manages based on relevant

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characteristics to be defined, according to which the member will be associated with one of the fund's default tracks. The default option tracks (as defined in the regulations - details below) will be anchored in the fund's articles and will stipulate that a member who is associated with a default track that is no longer compatible with his characteristics according to the model, shall be transferred to a default track that is compatible with his characteristics. From January 1, 2011, a financial institution shall include a new member in the default track that corresponds most closely with the member's characteristics according the model. Before February 1, 2010, the institution must examine which default track is suited to each member of the institution, excluding a member who saves in a specialist track (a track whose investment policy is committed to exposure at a rate of at least 50% of the value of the track's assets, or to no exposure, or to a specific investment branch or channel) and it must inform the member by March 31, 2010 of its intention to transfer the member to the most appropriate default channel or to an annuity receiving channel (as defined in the articles - details below). The investment committee shall determine the investment policy for each default track and for annuity receiving channels in line with the model determined for that track, and it shall determine an outline for adapting the mix of investments to the required mix according to the defined investment policy, in line with the maximum time schedules set in the circular. Furthermore, the financial institution must regularly adapt the default track to members as part of a review to be conducted at least once every two years, and it shall inform a member who is found to be on an unsuitable default track that he will be moved to a suitable track within 60 days. The annual report sent to members shall specify the default track that is most suited to the member. Together with the draft circular that was published, draft Control of Financial Services (Provident Funds) (Setting up Default Tracks) Regulations, 5769-2009, were published. The draft regulations prescribe that a financial institution shall set up investment tracks for managing members' money to form a default option when the member joins the fund, two to four of such tracks shall be for members who are not yet 55 years old, there shall be one investment track for members who are more than 55 years old but not yet 60 years old, and one investment track for members who are more than 60 years old but have not yet begun to receive an annuity. The regulations also stipulate that a financial institution that manages an annuity paying provident fund or an old fund shall manage a track for annuity recipients that are one separate account for recipients of an annuity, in which assets held against liabilities are managed for such recipients, and it shall set up one investment track to manage those assets. The Commissioner and the management companies are discussing the draft circular. 1.9.2.24 On June 24, 2009, the Commissioner published a second draft circular concerning capital requirements for management companies. Concurrently, draft Control of Financial Services (Provident Funds) (Minimum Capital Required of a Management Company) Regulations, 5769-2009, were published (see par. 1.9.2.27). Pursuant to the draft circular, the minimum capital required of a management company at the reporting date shall be no less than the higher of the following: (a) the initial capital required under Article 2 of the articles - NIS 10 million; (b) an amount comprising the following: (I) 0.3% of the assets under management the volume of which is no more than NIS 10 billion; (II) 0.2% of the assets under management amounting to more than NIS 10 billion but no more than NIS 20 billion; (III) 0.1% of the assets under management that amount to more than NIS 20 billion. The minimum capital required shall be held according to one of the following options: (a) as a deposit in a trust account under the conditions specified in the draft; (b) in the management company's account under the conditions specified in the draft. The provisions of the

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circular shall apply to all management companies excluding a company that manages a Sectoral provident fund and an old pension fund management company that is owned by the members. The Commissioner and the management companies are discussing the draft circular. Regarding the supplementary capital that the management companies in the Harel Group require as per the draft circular, see Note 7 to the Financial Statements.

Draft regulations 1.9.2.25 On October 15, 2009, the following were published: draft Control of Financial Services (Insurance) (Application for a License, Training, Specialization, and Exams for Insurance Agents, Pension Advisors, and Pension Marketing Agents) (Amendment) (Draft) Regulations, 5770-2009; draft Control of Financial Services (Insurance) (Exemption from the Duty to Specialize or Exams for Insurance Agents, Pension Advisors and Pension Marketing Agents) (Amendment) (Draft), 5770-2009; and draft Control of Insurance Business (Fees) (Amendment) (Draft) Regulations, 5770-2009. The amendments to the regulations update the training format for obtaining a license as an insurance agent, pension advisor and marketer, as a direct result of the expected change in the exams that are prepared by the Israel Securities Authority, which constitute part of the training format. In addition, the regulations update and expand the fees collected from license applicants. The Commissioner and the financial institutions are discussing the draft regulations. 1.9.2.26 On August 5, 2009, the Knesset Finance Committee approved draft Control of Financial Services (Provident Funds) (Individual Retirement Provident Fund Accounts) ("IRAs ") Regulations, 5769-2009. The proposed regulations regulate the activity of IRAs. According to the draft regulations, the money in IRAs shall be invested exclusively as instructed by the member or the portfolio manager with which the provident fund member has entered into agreement and which includes all the necessary details for an agreement between a customer and portfolio manager under the Regulation of Engagement Law, with the relevant changes, and where the member has instructed the management company to invest the money in the provident fund through the investment manager. The management company shall draw up a written agreement with the member of the IRA provident fund and give him a copy of the agreement as soon as it has been signed. The draft regulations prescribe instructions in the event that the member should choose to invest the money in the provident fund based on the portfolio manager's instructions, regarding restrictions on investing the money in an IRA, regarding the management fees and expenses that can be collected from the fund, regarding the method of revaluing the assets and regarding the transfer of money. The regulations also apply to an investment track in a multiple-track provident fund. Securities shall be bought or sold according to a competitive process (tender) to be held at least one in three years among at least 4 bidders. The sale or purchase of securities through an associate is also strictly prohibited (transitory provisions - a sale or purchase may take place through an associate before December 31, 2009, provided that the commissions are no more than 20% of the total commissions paid for all the sales and acquisitions made during the course of the calendar year). The regulations also stipulate that no distribution fee or commission charge shall be paid. 1.9.2.27 On June 2, 2009, draft Control of Financial Services (Provident Funds) (Minimum Capital Required of a Management Company) Regulations, 5769-2009, were published. Concurrently, a draft circular was published concerning capital requirements for management companies, (See par1.9.2.24). The draft regulations prescribe that the initial shareholders' equity required of a management company

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shall be NIS 10 million, and the minimum equity shall be determined in accordance with the Commissioner's instructions. Moreover, a management company whose shareholders' equity on the date of publishing the regulations is less than the initial capital required in the regulations must increase its shareholders' equity by at least half the required amount by March 31, 2010, and the balance must be supplemented by December 31, 2010. The Commissioner and the management companies are discussing the draft circular. 1.9.3 Health insurance Provisions of Law 1.9.3.1 On September 17, 2009, Control of Financial Services (Insurance) (Group Health Insurance) Regulations, 5769-2009 were published. Among other things, the draft Regulations prescribe the following: (a) who is entitled to enter into agreement in a group policy and their obligations towards the insurer; (b) the insurer's obligation to produce documents for each individual member of the group of insureds (such as a copy of the policy, fair disclosure form and policy schedule); (c) termination of the policy period on a date known in advance; (d) conditions under which an insurer must allow an insured to move to a personal lines health insurance policy; (e) prohibition on entering into agreement in a group health insurance policy enrollment which constitutes a condition for employment or for joining the insured group; (f) the obligation to send an annual mailing to each individual member of the insured group. The regulations shall apply to group health insurance contracts from July 1, 2010, and to group health insurance contracts that are renewed from that date. The Commissioner and the insurance companies are discussing the draft regulations. Circulars 1.9.3.2 On August 17, 2009, the Commissioner published a circular concerning information that must be given to policyholders in group insurance. The circular specifies the minimum information that an insurer must give to a group health insurance policyholder (personal accidents, illness and hospitalization), in a group work disability policy, and in group life insurance. The circular prescribes that an insurer must give the policyholder the following information at least: (a) total amount of the premiums, divided by years; (b) information regarding claims paid as a lump sum; (c) information concerning claims paid in installments (including annuity). If there are 20 claims or less up to the reporting date, the insurer shall present the total amount of claims paid by class of claim and the total amount of premiums allocated by years, and the insurer shall also be entitled not to provide addition information or to detail the information according to the prescribed reporting format. Furthermore, if a policy or agreement between the policyholder and the insurer prescribes a condition concerning adjustment of the premium during the policy period, the insurer shall give the policyholder the amount for each of the variables that were used for setting the said premium. The insurer must submit the aforementioned information to the policyholder at his request, and no more than once a year, within 30 days of his request and 60 days before the date for adjusting the premium during the policy period. The circular takes effect on its date of publication. 1.9.3.3 On June 24, 2009, the Commissioner published a circular concerning annual reporting to holders of health insurance policies (the circular will annulled insurance circular 2001/10). The circular applies to policies for personal accident insurance and policies for illness and hospitalization insurance, including long-term care (excluding work disability, overseas travel insurance, and health insurance for foreign workers) which have a policy period of more than a year. The circular prescribes that an insurer must send its policyholders an annual report in the format set out in the

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circular, within four months of the end of the year regarding the year ended. According to the circular, the reporting format shall apply to reports in respect of 2009 onwards, where the reporting date in respect of 2009 is within six months of the end of the year. 1.9.3.4 On March 29, 2009, the Commissioner published a circular concerning providing of information on insurance compensation in health-insurance plans. Pursuant to the circular, if an insurance plan specifies a maximum sum of compensation payable for the insured event, which is not a nominal value, the insurer shall present on his website, for each insured event for which such a maximum amount of compensation is specified, the sum of money at its nominal value ("Details of the Insurance Compensation"). An insurer may change, no more than once a year, the Details of the Insurance Compensation only following a change in the amount that it pays the service providers with which it has an agreement, or a change in the formula according to the maximum insurance compensations are paid, not at nominal value. In an insurance plan that includes compensation, as noted, the insurer will mention, as part of a full disclosure form in the insurance plan, the insured's right to receive the Details of the Insurance Compensation as well as the possibilities available to the insured for obtaining information concerning Details of the Insurance Compensation (for example through the company's website and call center). An insurer may restrict the access to details of the insurance compensation regarding a group health insurance plan - to the group's policyholders only, and subject to prior approval from the Commissioner, and in a personal lines health insurance plan that pays maximum compensation as noted and where the insurer does not continue to market the plan in the same format after the circular becomes applicable - for existing insureds only. The circular shall become applicable from March 1, 2010. 1.9.3.5 On January 14, 2009, the Commissioner published a circular concerning insurance cover for transplants. The purpose of the circular is to prescribe instructions for implementation of the Organ Transplants Law, 5768-2008 for plans that include insurance cover for financing organ transplants, as well as to provide policyholders with fair disclosure on this subject. Among other things, the circular prescribes that: (a) an insurer shall not include in an insurance plan that includes indemnity or compensation for financing a transplant, an instruction whereby payment is made to a person for an organ taken from his body or from the body of another person, or that is designated to be taken; (b) before giving indemnity or compensation to finance a transplant, the insurer shall examine whether the transplant was performed according to the provisions of the said law and shall mention this instruction in the plan's fair disclosure form. The circular stipulates that an insurer shall submit the required amendments to existing plans for the Commissioner's approval by March 15, 2009, so that such provisions are not included after May 1, 2009. Furthermore, by June 30, 2009, an insurer must inform existing policyholders of plans that contradict the aforementioned par. (a) that no such indemnity or compensation will be given. Draft circulars 1.9.3.6 On November 22, 2009, the Commissioner published a draft circular concerning prescription in a policy which includes insurance cover for disability. Disability insurance cover is insurance cover in which the entitlement to insurance benefits is formulated when the following two conditions are met: 1) an accident has occurred or an illness has been discovered; 2) the insured suffers disability as a result of the accident which occurred or the discovery of the illness. The draft circular prescribes that an insurer may only claim prescription after the prescription period has elapsed, to be counted from the date on which the disability came into being. Policies which are marketed from May 1, 2010 shall be amended as mentioned above (the

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amendments must be submitted to the Commissioner by March 15, 2010). The provisions of the circular shall apply to policies which include insurance cover for disability, including policies for accidental disability and policies for personal accident insurance, from the publication date of the circular, for claims to which prescription does not yet apply on that date. 1.9.3.7 On October 1, 2009, the Commissioner published a draft circular concerning group long-term care insurance (the circular will replace existing insurance circular 2004/11). The draft circular prescribes that a group long-term care insurer must allow any person who is part of a group long-term care insurance plan to move over to a personal lines policy for a lifetime policy period (follow-up policy), under the conditions specified in the circular. The possibility of moving over to a follow-up policy will be given to a person who was insured continuously in a group policy for at least three years, by the insurer or any other insurer, and this in the instances and conditions specified in the circular, provided that the insured did not exercise all his rights under the group policy when he moved over to the follow-up policy. A group long-term care policy shall include the possibility of receiving insurance benefits for long-term care at the insured's home, by way of compensation at an agreed amount or the actual rendering of the service by the insurer. The insured shall be released from premium payments in respect of the long-term care insurance when the insurance benefits are being paid. The draft circular also determines that cancellation of any insurance cover shall not be conditioned on cancellation of the group long- term care insurance - that is, a long-term care insurance policy shall only be cancelled at the insured's request. The provisions of the circular shall apply to group long-term care insurance policies that are sold or renewed from January 1, 2010 onwards. The Commissioner and the insurance companies are discussing the draft circular. 1.9.4 General insurance Provision of law 1.9.4.1 The Economic Arrangements Law for 2009, enacted in July 2009, prescribes amendments to the Economic Arrangements Law (Legislative Amendments to Achieve Budget and Economic Policy Goals for Fiscal Year 2002), 5762-2005, the Compulsory Motor Vehicle Insurance Ordinance [New Version], 5730-1970, and the Compensation for Road Accident Victims Law, 5735-1975 (Compensation Law). In the context of the amendments, the responsibility for treating road accident victims was transferred to the health funds. These amendments prescribe that a compulsory motor insurance policy will not include cover for a resident of Israel for the health services that are included in the Second Schedule or in the order under the National Health Insurance Law, 5754-1994. Moreover, the obligation to pay indemnities to the medical institutes providing the mentioned health services, included in the Compensation Law for physical injury which applies to insurers of users of motor vehicles in road accidents in which they are involved, shall not apply to a victim who is a resident of Israel. To pay for the medical services that road accident services receive from the health funds, an insurer shall transfer to the Fund for the Compensation of Road Accident Victims (the Fund) by the 10 th of each month, a rate to be determined by the Minister of Finance from the premiums that the insurer collected in the previous month for all the compulsory insurance policies that it issued. The Fund shall transfer these amounts to the National Insurance Institute which in turn will transfer them to the health funds. An amendment to the National Health Insurance Law, 5754-1994 prescribed that health funds will not collect a deductible for such services. These amendments will become applicable from January 1, 2010, where the obligation to transfer the premiums from the insurer to

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the Fund shall apply with respect to premiums for policies that were drawn up from that time or from a later date. The amount or rate of compulsory premiums that the insurers will be required to transfer has not yet been determined. The amounts are currently being reviewed by the Finance Ministry which will define the amount representing the increase to be transferred in respect of the reassignment of responsibility for the medical treatment to the health funds. The aforesaid transfer of responsibility is not expected to have a significant impact on performance, excluding a 9% reduction in the volume of premiums for compulsory motor insurance against a similar reduction in the claims item in this area of activity. Applications to the High Court of Justice 1.9.4.2 On August 31, 2006, the Ministers of Finance and Health published the Control of Goods and Services (Hospitalization Services and Ambulatory Services at Hospitals for Road Accident Victims) Order, 5766-2006, whereby the Control of Goods and Services Law was also applied to hospitalization and ambulatory services for road accident victims. By virtue of this order, the Ministry of Health issued a maximum pricing rate for hospitalization services and ambulatory treatments administered to road accident victims. The pricing method and the prices quoted in the new rate may increase the costs of medical treatment for road accident victims. On November 6, 2006, the Israel Insurance Association appealed to the High Court of Justice (HCJ 9109/06) with a request to cancel Section 3 of the Order which sets a maximum price for these services based on a differential price method, based on the maximum price set by the health funds. In a hearing that took place on March 19, 2008, the court recommended that the parties should discuss the issue between them in an effort to reach agreement in connection with the disputes that are the subject of the appeal. Pursuant to the court's recommendations, the parties applied to the Antitrust Commissioner for a permit to conduct joint negotiations through the Israel Insurance Association with the Ministry of Health, the health funds and the private hospitals. A permit was also requested to jointly monitor billing by medical institutions at the stage of rendering the medical service during the initial hospitalization. This permit was obtained and it specifies the conditions for conducting joint negotiations and joint control. At this stage, negotiations are underway in which context the parties have reached agreement to the effect that if the company is entitled to a bill in respect of hospitalization for a road accident victim that is submitted not pursuant to the terms of the arrangement that existed immediately prior to the issue of the aforesaid order, Harel Insurance will pay that part of the bill according to the previous arrangement. 1.9.4.3 In May 2009, the Israel Loss Adjustors Association, the Israel Consumer Council, and the Israel Garage Association filed a petition to the Supreme Court, in session as the High Court of Justice, requesting a decree nisi against the Commissioner and the Israel Insurance Association.Within the context of the petition, the Supreme Court was asked to issue a decree nisi instructing the Commissioner to explain why he has not used his powers to order an amendment of the arrangement prescribed in Insurance Circular 2007-1-8 -Loss Adjustment in Car Insurance (Property and Third Party), why he prefers the position of the advisory committee on loss adjustment for cars that was appointed by the Ministry of Transport, the Motor Division of the Ministry of Transport and the applicants, and why he has not instructed the cancellation of the list of external loss adjustors prescribed in Section 4 of the

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aforementioned circular and replaced it with a comprehensive list of all the loss adjustors registered in the Loss Adjustors Register. According to the applicants, this list places each of those listed on it in an in-built conflict of interests. Circulars 1.9.4.4 On October 28, the Commissioner published a circular which revises Insurance Circular 2008-1-9, concerning use of the database to locate fraud in the compulsory motor insurance sector. The circular prescribes gradual transitory provisions for a period commencing on November 1, 2009 until February 2010, for the quantity of certificates in respect of which an insurer must perform verification by means of an on-line question in the database during the underwriting process, and before a compulsory motor insurance certificate is issued for a private and commercial vehicle weighing up to 4 tons and for a motorbike. 1.9.4.5 On September 17, 2009, the Commissioner published a circular concerning residual insurance premiums from November 1, 2009 (the circular cancels the existing circular - residual insurance premiums, that applies from November 2, 2008 - insurance circular 2008-1-8). The circular prescribes that from this date, the insurance premiums shall be as specified in the appendix to the circular, linked to the index for May 2008. An amount of participation in financing the Fund will be added to the net premiums (insurance premiums excluding fees) in accordance with the Compensation for Road Accident Victims Order (Financing the Fund), 5763-2002, and fees at an amount equal to 8% of the net insurance premiums. In addition, the circular stipulates that the net premiums that the insurer collects for each insured with a particular vehicle and specific characteristics shall be no more than 90% of the net premiums for the same insured within the context of the arrangement for residual insurance. A circular which updates the aforementioned circular, published on November 11, 2009, stipulates that an insured who acquires insurance which contains a deductible condition in the amount of NIS 25,000 for loss which is not monetary loss and 7 days for loss of earnings, will receive a 20% discount compared with insurance which has no deductible condition. Another circular, from October 26, 2009, contains an update whereby the rates will apply in respect of a policy period commencing on November 1, 2009, and for motorbikes the policy period commences on November 15, 2009. Draft circulars 1.9.4.6 On April 23, 2009, the Commissioner published a draft circular amending Insurance Circular 2005-1-12 "Life Assurance and Structural Insurance that is Incidental to a Housing Loan". According to the draft circular, insurance for third-party liability in respect of consequential loss caused directly by a defect in the insured home, shall be added to an agency's license for selling insurance incidental to a housing loan by a banking corporation, up to a sum assured of NIS 100,000. The Commissioner and the insurance companies are discussing the draft circular. 1.9.4.7 On April 5, 2008, the Commissioner published a draft circular concerning commissions for insurance agents from service providers. An insurance agent who recommends a service provider to a customer, such as: a garage, lawyer, loss adjustor and doctor, in return for a fee or any benefit, is in a conflict of interests between his personal interest and that of the customer. The purpose of the circular is to extend the prohibition that applies to insurance agents against accepting payment of a fee or any benefit in connection with the customer's choice of a loss adjustor, with respect to other service providers. The draft circular specifies that an insurance agent, who makes a recommendation or refers his customers to a service provider or is involved in the process of choosing the service provider for the customer, shall

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operate for the good of the customer only, and using his professional discretion. Furthermore, an insurance agent who recommends or refers a service provider to his customers regarding settlement of a claim shall not accept a fee or any other benefit in connection with the said recommendation or referral. The Commissioner and the insurance companies are discussing the draft circular. Draft regulations

1.9.4.8 In September 2009, the Israel Insurance Association received the text of a proposed amendment to the Abatement of Nuisances (Prevention of Noise) Regulations, 57531992, following the recommendation of a professional committee set up by the Ministry of the Environment to prohibit the use of sound alarm systems in vehicles and when entering residential areas, due to the ambient noise nuisance caused by these alarms. The wording of the amendment was sent to the relevant entities in the insurance companies branch for their comments on the question of whether these alarms are essential and whether there are any convincing arguments against eliminating the alarm systems. The Israel Insurance Association submitted its comments on the aforesaid proposed amendment, in which it expressed its objections to the proposed amendment. 1.9.4.9 On June 29, 2009, the Commissioner published a second draft of the Control of Insurance Business (Conditions of an insurance contract for a private vehicle) Regulations, 5746-1986. The draft regulations prescribe changes in the provisions and conditions of the standard insurance policy for a private vehicle, for example:(a) clarification that riders to the policy shall not include cover for physical injury; (b) in the schedule or policy, an insurer shall specify the formula for reinstatement next to the details of the deductible amounts; (c) when making the insurance proposal, the insurer must clarify with the insured which extras or accessories are an integral part of the insured's vehicle that may affect the value of the car; (d) when calculating the loss for the purpose of paying the insurance compensation to which the insured is entitled under the policy, loss for an impairment in the vehicle's value shall also be included, VAT shall be included in the compensation, unless inputs tax is deducted in respect of the repair by law; (e) the value of the vehicle for the purpose of total loss shall be determined according to its value on the day that the insured event occurs, the loss from the impairment of value shall not be taken into account when determining constructive total loss; (f) the insured must be allowed to declare that the vehicle is out of commission for a certain period, and he must inform the insurer that he does not intend to use the car during a defined period. At the end of the no- use period, the insured shall be refunded that part of the premiums in respect of the cover for accidental loss that he paid for the no-use period; (g) the handling of third- party claims shall be regulated so that the insurer must inform the insured in writing of any third-party claim and the insurer will only pay the third party if the insured has no objection; (h) any extension of the policy period requires the express consent of both the insurer and the insured; (i) if an accident was caused when the driver was under the influence of alcohol, a deductible that is five times higher than the ordinary deductibles will be charged; (j) the mechanism for refunding the premiums if the policy is cancelled was amended; (k) the prescription period shall be according to the period prescribed in the Contracts (Insurance) Law; (l) accidental loss must be repaired using new parts for any vehicle that is less than two years old; (m) An insured who repairs a vehicle that is still under the manufacturer or importer's warranty may do so according to the warranty. The Commissioner and the Israel Insurance Association are discussing the draft regulations.

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1.9.5 Financial Services and Capital Market 1.9.5.1 In November 2009, the Israel Securities Authority published a draft amendment to the Joint Investment Trust Law on the subject of ETNs (Exchange Traded Notes) and ETFs (Exchange Traded Funds). The amendment proposes regulating ETN activity in a manner similar to the arrangements that currently apply to mutual funds, so that the law will apply to all mutual investments in securities, excluding where a particular arrangement is excluded due to the fact that it is supervised under another law. The main points of the amendment are: (a) an ETFs shall be created through an agreement between a company that manages the ETFs and a company that serves as a trustee for the arrangement; (b) ETFs will be issued to the public only after the TASE has approved their registration for trade; (c) units shall be subscribed to and redeemed through a distributor who is obligated to distribute them according to a prospectus; (d) the ETFs manager shall be committed to creating and redeeming the ETFs; (e) the object of the ETF's liability shall be a "tracker asset" (parallel to an index or underlying asset with which the ETF is associated), and restrictions shall be placed on the classes of asset that the ETF manager may hold; (f) provisions shall be prescribed concerning the measurement and reporting of exposure to market risks; (g) each ETF manager will be obligated to manage a supporting account - an account run by the arrangement manager in which the assets deposited serve as collateral for upholding the liabilities of the bearers of the units in the ETFs; (h) each ETF must be managed separately and there must be no mixing of ownership between the different arrangements; (i) the ETF manager shall be entitled to the surplus income, over and above his commitments towards the bearers of the notes. In addition, the draft regulations add a legal infrastructure for regulating an ETN (Exchange-traded Fund) which is a new index product and will compete with mutual funds and ETFs. The main points of the proposed regulations are: (a) an ETN will be a tracker mutual fund whose units are registered for trade on the TASE and trade in the units will be possible during the normal course of trading only; (b) the fund manager will operate as a supplier of liquidity and negotiability; (c) there will be an ordinary secondary market in the fund's units which will also operate on those days on which the fund manager is not authorized to operate in the fund's units but there is trade on the TASE; (d) existing tracker funds may be registered for trade and may be converted into ETNs. 1.9.5.2 On September 9, 2009, the ISA published an instruction for fund managers concerning disclosure in the fund's name regarding possible exposure to high-risk bonds. Pursuant to this provision, the manager of a fund which has an investment policy with a possible exposure to funds that are rated less than BBB or which are not rated at all, which exceeds its maximum rate of exposure to shares, shall add the symbol "(!)" next to the name of the fund, and information about the meaning of the symbol shall be included in publications about the fund. Regarding a fund which does not have this symbol added to its name, this shall viewed as an undertaking added to the fund's investment policy whereby the fund will not create exposure to such bonds at a rate that his higher than the fund's maximum rate of exposure to shares. It was further stipulated that a fund whose name does not include the "(!)" symbol, but where the bond rating declines to a rating that is lower than BBB, this will not be considered a deviation from the investment policy if the fund manager corrects the deviation and submits a report to the TASE, as prescribed in the instruction. The provision shall become applicable on March 1, 2010.

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1.9.5.3 On June 2009, secretaries committee approved a proposed amendment of the Joint Investments Trust Law (amendment no. 13), 5769-2009. In the amendment it is offered to include provisions concerning: the inclusion of a future contract under the definition of a "security" regarding application of the law to an arrangement the purpose of which is a joint investment in securities and options; the definition of a "foreign fund"; the granting of power to the Authority to refuse to allow a company to serve as a trustee for a fund for reasons pertaining to the company's reliability and that if the trustee's credibility is affected, this may harm the company's reliability, and to withdraw approval that was granted to a company to serve as a trustee for the said reasons; an extension of the reporting obligations that apply to the trustee, so that they also apply to other events that may harm the trustee's credibility and to establish grounds for withdrawing the approval that he received to serve as a trustee; an improvement of the independence between the fund manager and the trustee; a requirement to detail the reasons for terminating the trustee's term of office; the granting of powers to the chairman of the Authority to refuse to allow a company to serve as a fund manager for reasons pertaining to the credibility of any entity where damage to its credibility may affect the company's reliability; an extension of the reporting obligation that applies to the fund manager; the granting of powers to withdraw approval given to a company to serve as a fund manager if it no longer meets the credibility conditions; the imposing of an obligation on a licensee who holds the means of control in a fund manager to inform the Authority when an indictment or conviction has been filed against the licensee or one of its senior officeholders, should the severity, nature or circumstances of such justify withdrawal of or a change in the license, and empowering the license committee to cancel or change such permit if an indictment is filed; the non application of restrictions on serving as a director and member of the investment committee, on serving in an investment management company that controls the fund manager or in a company that is controlled by such company; making it obligatory to appoint an audit committee, including prescribing provisions regarding the composition of the committee, the qualifying conditions of its members and the relationship between the committee and the internal auditor; making it obligatory for the board of directors to approve the control system, which shall include a variety of methods and measures, to approve an internal enforcement plan to ensure that the fund manager and its employees complies with the provisions of the law; granting the Minister of Finance the power to define "a transaction that may contain a conflict of interests" which must be discussed by the board of directors, as one that also includes a transaction that may contain a conflict of interests between the interests of the unit owners and those of the fund's outside investment portfolio manager; empowering the authority to permit the fund manager and the trustee to continue to employ a functionary in the fund manager or trustee, who has been convicted of an offense, should the circumstances justify this; a decision not to apply the requirement that a public offering of units shall be made according to a prospectus that the Authority has permitted for publication to an offering of units to investors (who are not institutional investors), who number no more than the number defined in the Securities Law (currently: 35); granting the Authority the power to refuse to issue a permit for a fund prospectus, for reasons including that it may instruct the withdrawal of approval that a fund manager received to operate as a fund manager or to apply to the court for the dissolution of a fund; cancellation of the obligation to produce a security prospectus, elimination of the need for approval from a meeting of the unit owners regarding a change in the dates of the offering and redemption of units in the fund with fixed dates, appointment of a CPA, the merging of funds, splitting of funds, turning a closed fund into an open fund and the reverse; the institution of a general meeting shall be replaced by the trustee's discretion, who has

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the power to convene a meeting of the unit owners, to allow at least five of the unit holders, who hold at least 5% (instead of: 10%) of the fund's units, to convene a meeting of unit owners, with the trustee's approval; abolishing the power that a meeting of the unit holders in a closed fund has to make a decision regarding dissolution of the fund; allowing at least five of the unit holders in a closed fund, who hold at least 5% (instead of: 10%) of the fund's units, to apply to the courts to liquidate the fund; extending the list of unit holders in a fund who have no voting rights at meetings of unit holders; the exclusion of a small fund, where the value of the fund's assets is not more than three times the minimum value prescribed in Section 46(g) of the Funds law, from the prohibition that applies to an associate entity to acquire units in a fund with which it is associated; the Minister of Finance will be empowered to promulgate regulations concerning restrictions on a fund's activity through a TASE member who is related to the fund manager or trustee, and this in an effort to limit the potential conflict of interests; prohibiting a fund manager from discriminating between funds, preferring the good of unit owners in one fund that it manages over the good of unit owners in another fund that it manages; granting the Minister of Finance the authority to set new conditions, obligating a fund manager to attend meetings of corporations whose securities are held by the fund, including with respect to the manner of passing resolutions, disclosing the decision-making process for voting and the actual method of voting; obligating the trustee to specify, in the quarterly report that it submits, whether it has found any irregularities in management of the fund that have been corrected or whether the fund manager has been instructed to correct any deficiencies found, and if such instructions were given - they must be detailed; an extension of the prohibition on accepting benefits in connection with management of the fund, even to a person who controls one who is employed by the fund manager and a company controlled by such a person; the granting of a permit to collect non-uniform management fees in a fund by refunding management fees to certain unit owners in accordance with the rules published by the fund manager and which are based exclusively on tests of size, duration of the holding of the units, and identity of the distributor through which the units are held; the restriction of discounts on addition, so that they are not given on a personal basis, but only based on size, duration of the holding of the units, and the identity of the distributor through which the units are held; granting a possibility of paying a commission to a market maker or underwriter of units in a closed fund, that is not considered a prohibited benefit; obligating the internal auditor to conduct his audit in accordance with accepted professional standards. The internal auditor shall report his findings directly to the CEO and chairman of the board of directors of the fund manager, to the trustee and the audit committee; elimination of the possibility of turning an open fund into a closed fund; changing the mechanism for liquidating a fund so that at the time of liquidation, the liquidator will perform a forced redemption of all the units that were not redeemed by their owners after notice was given of the anticipated liquidation. If, at the time of the liquidation, the fund does not have enough cash to redeem all the units, the fund manager must take credit in order to redeem the units. If, when the assets have been realized, the fund still has liabilities which it does not have sufficient cash to repay, the fund manager shall be liable to repay the liabilities from its own means. In contrast, if after the realization the fund has cash in hand, the trustee, after consulting with the Authority, shall instruct the fund manager as to what action to take, allowing five unit owners who hold 5% (instead of: 10%) at least of the fund units to ask the court to issue any instruction in connection with liquidation of the fund; reports must also be produced for unit owners, to be sent to their known address at the time, regarding the following events: termination of an agreement between a fund manager and an outside portfolio manager, and an error that was found in calculating

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the price of the fund's units after more than two weeks have passed from the date of the error, it will not be possible to offer units in a foreign fund to the public in Israel unless the ISA has given permission after the conditions set by the Minister of Finance have been met; the power to allow the offering of units in a foreign fund shall be limited to units that were offered according to approval granted by a supervisory authority in any country, and such power shall also include the power to permit an offering by way of double registration of units in a foreign fund that are registered for trade on the Stock Exchange; the manager of a foreign fund shall be obligated that if the fund manager or the fund that it manages no longer meets the conditions set by the Ministry of Finance, it must inform the ISA immediately. The ISA shall be empowered to instruct the manager of a foreign fund to suspend the offering of units in a foreign fund that it manages, to the public in Israel, and the Stock Exchange shall be empowered to delist units in a foreign fund, if the supervisory authority's approval is withdrawn or suspended or if the Authority issues an instruction to correct a deficiency and it is not corrected within the set time period; the Stock Exchange shall be empowered to prescribe in its regulations, arrangements for securing the rights of persons who acquire units in a foreign fund that were registered for trade on the TASE and are delisted; a person with an interest in a unit in a foreign fund whose units are offered to the public in Israel, shall be authorized to file a class action against the manager of the foreign fund or his appointed representative; the provisions of the law that do not refer exclusively to funds that are not foreign funds, for example: a civil fine due to misleading information, the prohibition on granting a benefit, etc., shall apply to foreign funds and the managers of foreign funds; the setting of a table of defined civil fines; appointing the Minister of Finance to establish, in the regulations, instances, circumstances and considerations on account of which the civil fine may be reduced; cancellation of the clause that specifies lower fine rates for a person who voluntarily discloses a violation and remedies it, and then informs the Authority when three price calculation days and no more than thirty days have passed from the day on which the violation took place; extension of the definition of "repeat violation" in respect of which an enlarged fine is imposed; violations of other provisions of the Funds Law shall be added which shall be deemed criminal offenses: the offering of units in a foreign fund to the Israeli public without the ISA's permission, action taken by a fund manager or trustee based on a consideration that is not the benefit of the unit managers in the fund and action taken by a fund manager or trustee which involves violation of the duty of care, fiduciary duty and duty of diligence applicable to them, including the failure to take reasonable measures to protect the fund's assets; an indirect amendment to the Investment Advice Law, whereby according to the said law, licensees shall be permitted to collect distribution fees from the manager of a foreign fund for performing transactions in the units of a foreign fund. 1.9.5.4 On February 18, 2009, the ISA published a circular for licensees concerning the recording of investment advice activity given to institutional customers and to qualified customers, clarifying that the Regulation of Investment Advice, Investment Marketing and Portfolio Management (Recording of Transactions and Recording of Advice Activity) Regulations, 5768-2007, that took effect on January 1, 2009, also apply to a licensee regarding investment advice or investment marketing activity to a corporation that is listed in the first schedule to the Securities Law, as well as to licensees operating on behalf of others and not only for themselves. This circular clarifies the documentation requirements from such customers.

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1.9.5.5 The TASE is working to amend its articles so as to increase the capital required of its members, in line with the new model for financial stability of TASE members that are not banks. The model will revise the requirements for equity, liquidity and the rules for extending credit to customers by TASE members that are not banks. The Company is of the opinion that the new model will require a subsidiary that is a TASE member to increase its shareholders' equity. 1.10 Exposure to claims Concerning exposure to claims, see Note 6 to the Financial Statements. 1.11 Developments in the capital market A. Genera l A year after the collapse of Lehman Brothers and the worsening of the financial and economic crisis, there are growing signs that the global economy is emerging from the crisis and returning to growth. In the wake of massive, globally coordinated government intervention which supported demand and reduced economic uncertainty, some of the advanced economies (Israel included) began to report positive growth in the second quarter of 2009, and in some cases such growth seems to begin in the third quarter. During the third quarter of 2009, the immediate threats to the stability of the global financial system abated somewhat. Rates of inflation worldwide remained low and monetary policy in different countries continued to maintain interest rates at low levels, at the same time extending the application of expansionist tools. Nevertheless, against the backdrop of the slowdown in private consumption, an expected increase in saving by households and a gradual reduction in the fiscal incentives offered by governments, together with high rates of unemployment and a weakened financial system, any recovery is expected to be slow. Current indicators of economic activity in Israel reinforce the opinion that there has been a positive turn in real activity, although there is still much uncertainty regarding the intensity of the recovery. During the third quarter of 2009, the import and export of commodities increased, as did revenues from taxes, there were more incoming tourists, and the various channels in the capital market reported expanded activity. Further recovery of the Israeli economy is dependent mainly on continuing global recovery. B. Developments in the economy The Group operates in the Israeli economy in which the economic, security and political situation impact on the volume of its activity in various sectors. Changes in the economic situation in the Israeli economy may result in changes in the volume of premiums and other revenues, and changes in operating costs among the Group's companies. The change in employment levels in the Israeli economy may have repercussions on the scope of activity in the life assurance and long-term savings sector. The product in Israel grew 2.2% at an annual rate during the second quarter of 2009, with an increase of 1.6% in business output. The state's revenues from taxes during the third quarter of 2009 were NIS 48 billion, a slight increase compared with the corresponding quarter last year. Income from taxes from the beginning of the year were lower than last year, but the trend has improved in recent months, mainly thanks to an increase in revenues from indirect taxes (an increase in the VAT rate, additional tax on water, cigarettes and gasoline) and to the recovery in economic activity.

-1 48 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

C. Stock market Stock markets in Israel and worldwide were extremely positive during the third quarter of 2009, further to the positive trend which was recorded in the second quarter and against the backdrop of the economic data which presented an improvement in global economic activity as well as positive growth in several countries worldwide. The positive economic atmosphere, together with low interest rates and zero yields in the solid investment channels, fuelled support for Israel's stock market. The MSCI world index rose 18% during the third quarter of 2009, and 26% since the beginning of 2009. The MSCI index for emerging markets rose 21% during the third quarter of 2009, and an impressing 65% since the beginning of 2009. In Israel, the TA 100 share index and TA 25 share index recorded increases of 16% and 15% respectively in the third quarter, and 64% and 52% since the beginning of 2009. Several stocks associated with the gas found in drills off Israel's coast soared, contributing to an increase in the stock markets, particularly to an 88% increase in the TA 75 share index in the first half of 2009, mainly due to the increase in shares related to the gas drills. Performance of the leading indices Change during Change during Change during Change during 7-9/2009 7-9/2008 1-9/2009 1-9/2008 General shares 10.3% (17.9%) 56.9% ( 27.9%) index TA 100 index 15.8% (18.6%) 64.5% ( 30.4%) TA 25 index 15.4% (18.3%) 52.0% ( 27.1% ) Yeter shares index 14.6% (14.2%) 95.3% ( 34.4%) MCSI world index 17.6% (15.2%) 25.5% ( 23.8% ) MCSI emerging 21.0% (26.9%) 64.9% ( 35.4%) markets index

Average daily turnover of trade in shares on Israel's stock market was NIS 1.5 billion in the first three quarters of 2009, while in the third quarter an average turnover of NIS 2 billion was recorded, similar to the average turnover recorded during 2007-2008. D. Bonds market The general bond index rose 2.5% in the third quarter of 2009, and 4% since the beginning of 2009. The government bond index rose 2.3% during the third quarter of 2009, while linked government bonds raised 3.4%. The index for linked corporate bonds rose 4.4% during the third quarter of 2009, after a 13% increase in the second quarter, resulting in a 36% rise from the beginning of the year. The economic uncertainty which prevailed in the fourth quarter of 2008 gradually gave way during the first three quarters of 2009, contributing to the rise in corporate bonds.

-1 49 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

Performance of leading indices Change during Change during Change during Change during 7-9/2009 7-9/2008 1-9/2009 1-9/2008 Bonds - general index 2.5% (2.9%) 14.1% 0.8% Government bonds index 2.3% - 5.8% 4.7% Corporate bonds index 2.8% (6.7%) 28.7% (4.3%) Index linked government 3.4% (1.8%) 10.1% 6.1% bonds Index linked corporate 4.4% (8.0%) 35.9% (2.8%) bonds Non-index linked - 1.4% 0.9% 3.8% government bonds F/C indexed government (3.9%) 0.8% (1.4%) (9.1%) bonds index

Since the beginning of 2009, the business sector raised NIS 25 billion through bonds, out of this amount NIS 12 billions were raised in the third quarter of 2099, compared with an only NIS 18 billion in 2008. 40% of the total amount raised through bonds, since the beginning of the year, was raised by banks. The average daily turnover of trade in bonds was NIS 4.2 billion in the first three quarters of 2009, similar to the average turnover in 2008. Since the beginning of 2009, mutual funds raised NIS 14.6 billion, NIS 5 billion of which were raised in the third quarter. Particularly noteworthy were the mutual funds specializing in bonds, recording net recruitment of NIS 9.4 billion during the third quarter of 2009. The money funds recorded redemptions of NIS 12 billion since the beginning of 2009, after recruitments of NIS 28 billions during 2008. E. Foreign currency market During the third quarter of 2009, the Shekel strengthened 4.1% against the Dollar and by 0.4% against the Euro. During the first three quarters of 2009, the Shekel strengthened 1.2% against the Dollar and weakened by 4% against the Euro. The appreciation of the shekel during the third quarter was due, among other things, to a surplus in the current balance of payments account, to an expectation that the Bank of Israel will soon stop intervening in the foreign currency market and to estimates that the Israeli economy will recover more rapidly than other countries worldwide. F. Inflation Inflation totaled during the last 12 months (until September 2009) 2.8%, within inflation target (1%-3%). During the third quarter of 2009, the Consumer Price Index was raised by 1.3%. The government's decision to raise indirect taxes contributed considerably to price increases in the third quarter.

-1 50 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

Following are figures on changes in the CPI: Change during Change during Change during Change during 7-9/2009 7-9/2008 1-9/2009 1-9/2008 CPI increase rate (known index) 2.4% 2.1% 3.6% 5.0% CPI increase rate ( applicable 1.3% 2.0% 3.4% 4.4% index)

G. Bank of Israel interest rate The Bank of Israel raised the interest rate in September 2009 by 0.25% to 0.75% and left it unchanged in October. On August 10, 2009, the Bank of Israel announced that it would discontinue its program of daily purchases of foreign exchange and that it will "act in the foreign exchange market in the event of unusual movements in the exchange rate which are inconsistent with underlying economic conditions, or when conditions in the foreign exchange market are disorderly". To prevent a rapid appreciation of the shekel, the Bank of Israel purchased USD 8 billion during the course of the third quarter of 2009. H. Material market events after the reporting date The Bank of Israel left the rate of interest unchanged at 0.75% in November 2009, and raised the interest rate for December by 0.25% to a level of 1%. The CPI for October rose by 0.2%. Between September 30 and November 23, the MSCI World index rose by 4% and the Tel Aviv 100 index rose by 8%. During the same period, the Shekel weakened by 3% against the Euro and by 1% against the Dollar.

-1 51 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

2. Financial situation and performance 2.1 Summary of data from the consolidated interim financial statements of Harel Investments 2.1.1 Concise summary of consolidated interim financial data regarding the activity of Harel Investments (NIS thousands): Nine-months period ending % For year ending September 30 change December 31 200 9 *2008 *2008

Life assurance & long -term savings Gross premiums earned 2,020,957 2,053,332 (1.6 ) 2,893,872 Income from management fees 304,477 263,937 15.4 352,614 Profit (loss) from life assurance business 196,572 (84,984 ) - ( 312,956 ) Profit from provident fund management 62,773 62,540 0.4 69,833 Profit from pension fund management 11,153 7,274 53.3 14,306 Total profit (loss) from life assurance &long -term savings 270,498 (15,170 ) - ( 228,817 )

General insurance sector Gross premiums earned 1,991,208 2,006,312 (0.8 ) 2,654,065 Premiums earned in retention 1,223,445 1,331,851 (8.1 ) 1,775,966 Total profit from general insurance sector 130,956 81,770 60.2 60,282 Health insurance sector Gross premiums earned 1,356,036 1,231,276 10.1 1,669,786 Premiums earned in retention 1,232,629 1,146,610 7.5 1,553,420 Total profit from health insurance sector 158,106 118,695 33.2 151,314 Capital market & financial services sector Income form th e capital market and financial services 119,076 138,988 (14.3 ) 168,962 Total expenses neutralizing loss of intangible assets depreciation 129,822 147,513 (12.0 ) 185,873 Loss of intangible assets depreciation - 78,452 (100.0 ) 131,716 Total profit (loss ) from capital market & financial services (11,036 ) (87,323 ) - (152,931 ) Items that were not included in areas of activity Profits (losses) from investments net and financial income 91,010 24,218 275.8 (65,120 ) Commission's income 37,503 37,150 1.0 49,475 Other income 4,066 35,507 (88.5 ) 38,020 G&A expenses not credited to the report on sectors of activity 65,910 76,820 (14.2 ) 102,220 Financing expenses 78,132 82,994 (5.9 ) 97,544 Pre -tax profit 546,588 34,708 1,474.8 (355,873 ) Net profit for per iod 370,422 3,705 9,897.9 (264,740 ) Profit (loss) including other for period, tax net 247,564 (106,115 ) - (71,176 ) Total profit (loss) for period 617,986 (102,410 ) - (335,916 ) Net profit (loss) for period relating to company's shareholders 351,263 (8,35 2) - (279,342 ) Net profit relating to minority interest holders 19,159 12,057 58.9 14,602 Equity capitals' yield (years term) (%) 16,61 (0.19 ) - (10.05 ) * Regarding reclassification see Note 2(c) to the Financial Statements.

-1 52 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

Summary of data from the consolidated interim balance sheets of Harel Investments (in NIS millions): At December At September 30 31 2009 *2008 % 2008 change Total balance 41,506 34,348 20.8 33,994 Assets for yield dependent contracts 15,872 12,966 22.4 12,159 Other financial investments 14,945 11,700 27.7 12,102 Intangible assets 1,510 1,564 (3.5 ) 1,516 Reinsurers assets 4,523 3,850 17.5 3,835 Insurance commitments (insurance reserves and outstanding claims) In life assurance For yield dependent insurance and investments contracts 14,401 11,426 26.0 10,655 For insurance contracts that are not yield dependent 8,354 7,513 11.2 7,756 In general insurance 8,136 7,307 11.3 7,194 In health insurance (yield-dependent and non yield-dependent) 2,835 2,390 18.6 2,394 Total insurance liabilities 33,726 28,636 17.8 27,999

Equity ascribed to the company's capital holders 2,990 2,634 13.5 2,397

* Regarding reclassification see Note 2(c) to the Financial Statements. 2.1.2 Management assets for group's insureds and members (NIS millions): At September 30 At December 31 % 2009 2008 change 2008 For yield dependent insurance and investment contracts 15,872 12,966 22.4 12,159 For provident funds and pension funds * 28,932 25,602 13.0 23,077 For mutual funds * 13,734 11,276 21.8 10,773 For customer portfolios * 2,333 2,250 3.7 2,051 ETFs 811 - - - Total management assets for group's insureds and members 61,682 52,094 18.4 48,060 * Total assets under management in provident funds, pension funds, mutual funds and portfolio management are not included in the Company's consolidated financial statements.

-1 53 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

2.2 Further information about performance The sum total of premiums earned from insurance business during the Reporting Period was NIS 5.37 billion, compared with NIS 5.29 billion for the corresponding period last year, an increase of 1.5% compared with the corresponding period last year. During the reporting period the non- recurring premiums from the Bezeq early retirement transaction (see par. 2.4.1 in Chapter 2 of the Periodic Report) that were recorded, amounted to a total of NIS 93 million, compared to non- recurring premiums in the amount of NIS 292 in the corresponding period last year, (the non- recurring premiums in the corresponding period last year were from the Bezeq transaction as well as from other liabilities sectors). After discounting the effect of the non-recurring premiums as mentioned, there is an increase of approx. 5.5% in the total amount of premiums earned during the reporting period. Net profit (including the minority interest in subsidiaries' profit) totaled NIS 370 millions compared with NIS 3.7 millions for the corresponding period last year. The overall profit consists of profit after tax for the reporting period plus the net change in a capital fund in respect of available for sale financial assets and other changes in shareholders' equity. Overall profit for the reporting period was NIS 618 million, compared with an overall loss of NIS 102 million for the corresponding period last year. This increase in profit and in overall profit was mainly due to the effect positive yields in the capital market, and to the decreasing rate of inflation effect compared with the corresponding period last year. Pre-tax profit for the Reporting Period was approx. NIS 547 million, compared with profit of NIS 35 millions for the corresponding period last year. Profit from life assurance and long-term savings totaled NIS 271 millions, compared with a loss of approx. NIS 15 million in the corresponding period last year. Profit in the health insurance sector during the Reporting Period was approx. NIS 158 million, compared with approx. NIS 119 million for the corresponding period last year, a 33% increase. Profit from the general insurance sector totaled NIS 131 millions, during the Reporting Period, compared with a profit of approx. NIS 82 millions for the corresponding period last year - a 60% increase. The loss in the capital market and financial services sector for the Reporting Period amounted to NIS 11 million, compared with a loss of NIS 87 million for the corresponding period last year, (NIS 78 million of the loss for the corresponding period last year was due to a write down of the value of mutual funds). The increase in profit is mainly the result of the effect of the capital market which led to a substantial increase in investment income and to the effect of the decline in the rate of inflation compared with the corresponding period last year. Since most of the non yield-depended insurance commitments are affected from index increase, the decrease in the increase rate has a positive effect on the activity results during the reporting period. Profit from investments and revenues from financing totaled NIS 4,259 million for the Reporting Period, compared with a profit of NIS 609 million for the corresponding period last year. The decline in the inflation rate during the Reporting Period also resulted in a decline in the Company's financing expenses not attributed to activity sectors, amounting to NIS 78 million, compared with NIS 83 million for the corresponding period last year - a 6% increase. At September 30, 2009, the Company had equity in the amount of NIS 2,990 million, compared with NIS 2,397 million at December 31, 2008. The increase is attributed to: (1) a profit contributed to company's shareholders, in the amount of approx. NIS 351 million; (2) an increase in the balance of capital fund in respect of available for sale assets, in the amount of approx. NIS 240 million; (3) movement in the outside activities translation fund in the amount of approx. NIS 1.7 million; (4) a decrease in the balance of shares in the Treasury, following an acquisition of Company shares by a subsidiary which issues financial product, in the amount of NIS 1.8 million. (5) for A share based payment capital fund in the total of NIS 1.9 millions. Regarding the expected increase in equity of the subsidiaries which are an insurer see Note 7 (9) to the financial statements and para. 1.9.1.12 above.

-1 54 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

Regarding restrictions on dividend payments in subsidiaries that are an insurer see Note 7(16) to the Financial Statements. 2.3 Disclosure concerning an impairment of financial assets Pursuant to international standards, financial assets that are classified as available for sale are measured at their fair value. Capital gains or losses from such assets are recognized directly in shareholders' equity (by way of crediting them to or deducting them from the capital reserve), and this up to the date on which they are realized, with the exception of losses from impairment or profits as a result of bonds' value restoring (up to the original cost), that are recognized in the statement of income, according to quantitative and qualitative tests, which were set by the Company, based on ISA 39. As noted, and as a result of the increases in the capital market during the Reporting Period, the balance of the reserve fund was increased and became positive, so that the balance as at September 30, 2009, amounted to a total amount of NIS 226 million after tax, compared with a negative balance of NIS 19.5 million at December 31, 2008. The following details the balance of profits and losses in respect of available for sale assets, which were charged directly to shareholders' equity. The figures are segmented according to the period in which the fair value of the asset is lower than its cost and according to the rates of decline in the fair value of the asset below its cost, updated to the reporting date. Capital fund - capital instruments:

Profit not Up to 6 9-12 More than yet Gross pre- months 6-9 months months 12 months realized tax Net of tax In NIS thousands Up to 19% (3,396 ) (512 ) - - - (3,881 ) (2,522 ) 20%-39% ------40% and above ------Capital fund- credit - - - - 186,364 186,364 122,632 Capital fund closing balance (3,396 ) (512 ) - - 186,364 182,483 120,109

-1 55 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

Capital fund - debt instruments:

Up to 6 6-9 months 9-12 More than Profit not Gross pre- Net of tax months months 12 months yet tax realized In NIS thousands Up to 19% (9,869 ) (471 ) (1,033 ) (7,782 ) - (19,155 ) (12,336 ) 20%-39% (1,040 ) - (899 ) (3,119 ) - (5,058 ) (3,256 ) 40% and above ------Capital fund- credit - - - - 187,219 187,219 121,435 Capital fund closing balance (10,909 ) (471 ) (1,932 ) ( 10,901 ) 187,219 163,006 105,843

Total capital and debt instruments:

Up to 6 6-9 months 9-12 More than Profit not Gross pre- Net of tax months months 12 months yet tax realized In NIS thousands Up to 19% (13,237 ) (983 ) (1,033 ) (7,782 ) - (23,036 ) (14,858 ) 20%-39% (1,040 ) - (899 ) (3,119 ) - (5,058 ) (3,256 ) 40% and above ------Capital fund- credit - - - - 373,583 373,583 244,066 Capital fund closing balance (14,277 ) (983 ) (1,932 ) ( 10,901 ) 373,583 345,489 225,952

When reviewing the impairment of available-for-sale financial assets that are capital instruments, the difference between the fair value of the asset and its original cost is also examined, addressing the standard deviation of the price of the instrument, the period in which the fair value is lower than its original cost, and changes in the technology, economic or legal environment, or in the market environment in which the Company issuing the instrument operates. In addition to the above, an impairment of capital instruments of 20% or more at the reporting date, or one that continues for more than 9 months (even if at a lower rate), is charged to the statement of income. When reviewing the impairment of available-for-sale financial assets that are debt instruments, the following factors are taken into account: 1) Intention and financial ability to hold the bond until the redemption date; and

-1 56 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

2) As far as the company is aware, the impairment does not meet the criteria described in IAS 39, Section 59, as detailed below:

a) Significant financial difficulties on the part of the issuer or the debtor;

b) Breach of contract, such as default or arrears in paying the interest or principal; c) The lender, for economic or legal reasons relating to financial difficulties on the part of the borrower, gives the borrower relief, which the lender would not have been considered in other circumstances; d) The borrower is expected to embark on bankruptcy proceedings or some other form of financial restructuring; e) There is no active market for the financial asset due to financial difficulties, or f) There is a measurable decline in estimated future cash flows from a group of financial assets since these assets were first recognized, notwithstanding that the decline cannot yet be associated with individual financial assets within the group, including: 1) negative changes in the payment status of the group's borrowers; or 2) national or local economic conditions that correlate with failures relative to assets in the group (for example, an increase in the unemployment rate in the borrowers' geographical area, a decline in real-estate prices with respect to mortgages in the relevant area, a decline in the price of oil relative to loan assets to oil producers, or negative changes in the conditions in the sector that affect the group's borrowers).

In addition to the above, an impairment of debt instruments at a rate of 40% or more at the reporting date is attributed to the statement of income. 2.4 Life assurance and long-term savings Life assurance Gross premiums earned totaled NIS 2,021 million during the Reporting Period, compared with NIS 2,053 million for the corresponding period last year, a 1.6% decrease, and accounted for approx. 38% of all premiums earned by the Group during the Reporting Period. The decline in premiums relative to the corresponding period last year is due mainly to non-recurring premiums in the amount of NIS 219 million which were received during the corresponding period last year in respect of Bezeq early retirement (see par. 2.4.1 in Chapter 2 of the Periodic Report), compared with NIS 92.5 million received from Bezeq during the Reporting Period. Discounting the effect of the non-recurring premiums from Bezeq, there is a 5.1% increase in earnings from life assurance. Profit in life assurance during the Reporting Period totaled NIS 197 million, compared with a loss of approx. NIS 85 million for the corresponding period last year. The transition from loss to profit is mainly due to capital market effect and the low inflation compared the corresponding period last year. During the Reporting Period, the profit from investments, held against life assurance insurance's commitments, totaled to approx. NIS 3,639 million, compared with a loss from investments of approx. NIS 791 million for the corresponding period last year. Profitability in life assurance is derived mainly from investment profits, which have an influence on income from management fees in respect of yield depending liabilities assets and in the financial margin regarding the investments of non-yield depending liabilities' money. Management fees, as well as the financial margin are calculated in real value. Accordingly, the inflation increasing rate against the investments income, has a material effect on activity area profitability. During the Reporting Period, profits from investment activity, as well as a decline in the inflation rate, were record compared with the corresponding period last year. Consequently, the financial margin that the Company enjoyed was seriously increased compared to the corresponding period last year. In addition, during the Reporting Period, due to the investment losses on assets held against yield-

-1 57 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

dependent commitments which were accumulated in previous periods from investments, Harel Insurance did not collect any "variable management fees". During the Reporting Period, Harel Insurance collected only fixed management fees in the amount of NIS 63 million, compared with fixed management fees collected on the corresponding period last year in the amount of NIS 56.5 million. Pursuant to the mechanism for collecting management fees prescribed in the legislative arrangement, an insurance company will not collect variable management fees in respect of yield depending policies sold between the years 1991-2003, until investment profit is attained in respect of the assets held against yield-dependent commitments, to cover the accrued investment losses. The accrued investment losses in Harel Insurance in 2008 after deduction of investments profits during the Reporting Period relating to the aforementioned policies are in the overall amount of NIS 500 million. Accordingly, as at September 30, 2009, the estimate variable management fees which Harel Insurance will not collect according to the above described mechanism amounts to NIS 78 million compared with approx. NIS 381 million as at December 31 2008. In October 2009, the trend of positive yields on the capital market continued, and as a result, the amount of the variable management fees that Harel Insurance will not collect declined, reaching NIS 50.2 million on October 31, 2009. During the reporting period Harel Insurance updated the estimates for management fees it will not collect that were published on former reporting periods with an additional sum of NIS 35 millions. As at June 30, 2009, March 31, 2009 and December 31, 2008, Harel Insurance did not collect variable management fees, according to the above mentioned mechanism in the amounts of NIS 138 million, NIS 253 million and NIS 381 million, respectively. The aforementioned potential loss of income had a direct impact on reducing Harel Insurance's embedded value. 2.4.1 Yield-dependent policies Following are the yield rates in yield-dependent policies - Fund J: Policies issued 1992-2003 1-9200 / 9 1-9200 / 8 (in percent) (in percent) Real yield before management fees payment 23.51 (14.4) Real yield after management fees payment 22.97 (14.8) Nominal yield before management fees payment 27.98 (10.1) Nominal yield after management fees payment 27.42 (10.5)

Following are the yield rates for yield-dependent policies - general track: Policies issued from 2004 1-9200 / 9 1-9200 / 8 (in percent) (in percent) Real yield before management fees payment 23.44 (13.3) Real yield after management fees payment 22.38 (14.1) Nominal yield before management fees payment 27.91 (9.0) Nominal yield after management fees payment 26.81 (9.8)

-1 58 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

Estimated investment profit (loss) and management fees in the Consolidated Income and Loss Reports, that was credited to the owners of yield-dependent policies and are calculated in accordance with the instructions prescribed by the Commissioner, based on the quarterly balances and yield of the average insurance reserves, is (in NIS millions):

1-92009 / 1-9/2008 Profit (loss) after management fees 2,931 (1,218) Total management fees 63 57

Pension funds 2.4.2 The number of members in the pension funds managed by the Group, at September 30, 2009 is 358 thousands of which 212 thousands are active members, an increase of 29% in the number of active members compared to September 30, 2009. The volume of assets managed by the pension funds at September 30, 2009 totaled NIS 8.1 billion compared with NIS 5.8 billion as of September 30, 2008, an increase of 40%. Management fees collected by the pension fund in the reporting period, totaled NIS 1,032 million compared with NIS 785 million in the corresponding period last year, an increase of approx. 31%. The pension funds' assets and the benefit contributions deposited in the funds are not included in the Company's consolidated financial statements. Total income from management fees (less refunds and benefits) that were collected from the pension funds managed by the Group, was NIS 82 million for the Reporting Period, compared with NIS 69 million for the corresponding period last year. The pension funds costs amounted to NIS 73 million compared with NIS 63 million for the corresponding period last year. Total pre-tax profit from pension funds management and from operating an old pension fund totaled to NIS 11 million for the Reporting Period, compared with a pre-tax profit of NIS 7 million for the corresponding period last year. In the first nine months of 2009, positive yields were record in most investments channels in the Capital Market. The nominal yield rates attained by Harel Pension during the Reporting Period in the comprehensive new pension funds managed in the Group are as follows:

Total yield Investments yield Demographic yield (percentage) (percentage) (percentage) Funds' Name

Harel Pension 25.30 24.54 0.62

Harel-Gilad 23.48 23.02 0.39 Harel-Manof 21.92 21.05 0.73 Provident funds 2.4.3 The Group manages 23 provident funds (provident funds, education funds, central and personal severance pay funds, a provident fund for sick pay and budgetary pension fund). Some of the provident funds have several investments tracks of which the members can choose. The volume of assets under management in the provident funds managed by the Group at September 30, 2009 totaled NIS 20.8 billion, compared with approx. NIS 17.3 billion in December 31, 2008 and compared with an amount of NIS 19.8 billion as at September 30, 2008.

-1 59 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

The provident funds' assets and benefit contributions are not included in the Company's consolidated statements. Income from management fees that were collected from the provident funds managed by the Group amounted to NIS 159.7 million for the Reporting Period, compared with NIS 138.5 million for the corresponding period last year. Provident funds costs amounted to approx. NIS 97.3 million compared with NIS 76.5 million for the corresponding period. The provident fund management companies posted pre-tax profit that is included in the consolidated statement of income for the life insurance and long-term savings area in the amount of NIS 62.8 million for the Reporting Period, compared with NIS 62.5 million for the corresponding period last year. The provident funds' net accumulation in the Reporting Period was negative totaled a sum of NIS 307.4 million, compared with negative accrual of NIS 959 million for the corresponding quarter last year. 2.5 Health insurance Premiums earned in the health insurance sector totaled NIS 1,356 million for the Reporting Period, compared with NIS 1,231 million for the corresponding period last year, a 10% increase. Total premiums earned in health insurance during the Reporting Period, accounted for 25% of all premiums earned by the Group. During the Reporting Period, the health insurance sector posted profit of NIS 158.1 millions compared with NIS 118.7 million for the corresponding period last year, a 33.2% increase. This profit increase was due to the activity results, an increase in investment's profits (in the Reporting Period approx. NIS 284 million, compared with approx. NIS 48.3 million for the corresponding period last year) and as well as from a decrease in the inflation compared to the corresponding period last year, which effects on the scope of insurance commitments in respect of health insurance contracts. On the other hand, there was an increase in Company's share in payments and change in insurance liabilities and commissions, due to an increase to the insurance portfolio. Total payments and the change in commitments in respect of insurance contracts in the health insurance sector during the Reporting Period was NIS 1,172 million, compared with NIS 886 million for the corresponding period last year, an increase of NIS 286 million. Most of this increase was the result of a group long-term care insurance plan in which most of the investment risk and the investment profit was credited to the plan and was not imposed on the insurer. Investment profit of NIS 175 million was credited to the plan during the Reporting Period, compared with investments losses credited to the plan in the amount of NIS 12 million for the corresponding period last year. Accordingly, the insurance reserve in respect of this plan increased.

-1 60 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd Board of Directors'' Report Nine-months period ended September 30, 2009

2.6 General insurance Composition of the premiums gross, and profit from general insurance activity for the Reporting Period before taxes, by the insurance branches included in general insurance, are as follows (in NIS thousands): Gross premiums Profit (loss) before tax % % 1-9/2009 1-9/2008 change 2008 1-9/2009 1-9/2008 change 2008 Motor 483,877 468,918 3.2 565,308 75,341 27,414 174.8 10,650 property Compulsory 713,846 678,561 5.2 820,133 34,438 20,716 66.2 25,583 motor Insurance branches and 505,916 447,263 13.1 590,791 28,778 22,951 25.4 27,410 others Other liabilities 515,255 639,327 (19.4 ) 707,293 (7,601 ) 10,689 - (3,361 ) branches Total 2,218,894 2,234,069 (0.7 ) 2,683,525 130,956 81,770 60.2 60,282

Gross premiums during the reporting period totaled approx. NIS 2,219 million, compared with approx. NIS 2,234 million for the corresponding period last year, a 0.7 % decrease. An increase in premiums was recorded in most general insurance segments, compared to the corresponding period last year. It was equalized against a decrease in premiums from other liabilities segments as a result from non-recurring transactions held in this segment during the corresponding period last year. Premiums in retention for the reporting period amounted to NIS 1,241 million, compared with NIS 1,479 million for the corresponding period last year, a 16% decline. The decrease is mainly due to a first implementation during the reporting period, of the reinsurance agreement with National Indemnity Company (BH), (see para. 1.5.11 above). Profit in general insurance totaled NIS 131 million for the Reporting Period, compared with NIS 82 million for the corresponding period last year, an increase of 60%. The increase in profit was mainly due to the effect of the capital market on investments revenues. Motor property Gross premiums in motor property insurance totaled approx. NIS 714 million for the Reporting Period, compared with gross premiums of approx. NIS 679 million for the corresponding period last year, an increase of approx. 5.2%. The increase in premiums is due to the increase in number of policyholders that insured their vehicles through Harel Insurance, and an increase in Harel Insurance's share of the tender to insure state employees' vehicles during the Reporting Period (approx. 67% of the whole tender), relative to its share during the corresponding period last year - approx. 60% of the whole tender. Profit from motor property insurance for the Reporting Period totaled approx. NIS 34.4 million, compared with a profit of NIS 20.7 million for the corresponding period last year, an increase of 66%. The increase in profit is principally due to an increase in investments profits during the reporting period as well as to improved underwriting performance (a direct outcome of more selective underwriting practices, a decline in the number and frequency of car thefts, and more efficient handling of claims).

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On October 26, 2009, the Accountant General announced the results of the tender for insuring the vehicles of state employees for 2010. Accordingly, the share of Harel Insurance in insuring the vehicles of state employees will increase in 2010 to 85%, compared with 67% in 2009. Compulsory motor Gross premiums from compulsory motor insurance during the Reporting Period totaled approx. NIS 484 millions, compared with NIS 469 millions for the corresponding period last year, a minor increase of 3.2%. It is worth noting that the fierce competition in this filed of activity and the continuance erosion of premiums, has denied a substantial increase to premiums scope from this area of activity. Regarding compulsory motor insurance for vehicles owned by state employees, see the above chapter concerning motor property. Profit from compulsory motor insurance amounted to NIS 75.3 million for the Reporting Period, compared with NIS 27.4 million for the corresponding period last year, an increase of 175%. This increase is due to an increase in investments profits and a release of surplus income over expenses after three years in respect of the 2006 underwriting years, as well as to a certain decline in the frequency of claims. On November 27, 2008, the National Insurance Institute informed Harel Insurance (a similar notice was sent simultaneously to most of the insurance companies in Israel ["the Companies"]) that it was unilaterally canceling the agreement for settling National Insurance Institute subrogation claims against Harel Insurance that are filed under Section 328 of the National Insurance Law [Combined Version], 5755-1995, and this from January 23, 2009. This agreement is designed to settle National Insurance Institute claims pertaining to the annuity that it pays work accident victims who are also road accident victims, and where Harel Insurance is obliged to indemnify the victims of such road accidents. Hare Insurance responded to the National Insurance Institute's letter that such unilateral cancellation is unlawful, and that under the provisions of the agreement, the agreement will continue to be in force at least until December 31, 2009. Harel Insurance further informed the National Insurance Institute that it intends to join in the negotiations to be conducted between the Israel Insurance Association and the National Insurance Institute to extend the agreement between the Companies and the National Insurance Institute. These negotiations are contingent on obtaining the approval of the head of the Antitrust Authority (General Director). The Israel Insurance Association has applied to the General Director for permission to conduct such negotiations, but no reply has yet been received. In the present situation, the National Insurance Institute has asked Harel Insurance for subrogation under Section 328 of the National Insurance Law, in respect of the full amount of the annuity that it pays road accident victims, and Harel Insurance pays the National Insurance Institute only the amount that is not in dispute according to the existing agreement between Harel Insurance and the National Insurance Institute, that is - less those amounts that it is not obliged to refund to the National Insurance Institute under the existing agreements between the Company and the National Insurance Institute. In August a letter was received from the ISO (which operates the compulsory motor insurance database) recommending an 8% increase in compulsory motor insurance prices starting from November. Harel Insurance applied to the Commissioner to revise compulsory insurance prices from January 1, 2010, as per the aforesaid recommendation. Regarding the transfer of responsibility for medical treatment for road accident victims as part of the Compensation for Road Accident Victims Law from the insurance companies to the health funds, and the settlement of accounts regarding the transfer of this cost component from the compulsory insurance premiums, see par. 1.9.4.1 above.

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Other liabilities sectors In other liabilities sectors, gross premiums during the reporting period totaled NIS 515 millions, compared with gross premiums of NIS 639 million for the corresponding period last year, a decrease of approx. 19%. Most of the decrease in premiums is due to unique transactions done during the corresponding period last year in professional liabilities sector. Premiums in retention during the reporting period totaled NIS 165 million, compared with NIS 190 million for the corresponding period last year, a 13.2% decrease. The retention decline is due, in addition to the aforementioned regarding gross insurance premiums, to a first implementation during the reporting period, of a reinsurance agreement with National Indemnity Company (BH) (see para. 1.5.11 above). The loss in other insurance liabilities totaled during the reporting period in the amount of NIS 8 million, compared with a profit of NIS 10.7 million in the corresponding period last year. Property and other branches Premiums in the property and other branches totaled NIS 506 million during the reporting period, compared with gross premiums of NIS 447 million in the corresponding period last year, an increase of 13%. The increase in premiums is mainly due to grand business policies carried out during the second quarter of 2009 as well the continues trend of increase in contents insurance. Premiums in retention amounted to NIS 129 million during the reporting period, compared with NIS 149 million in the corresponding period last year, a decrease of 13.4%. The retention decline is mainly due to a first implementation, during the reporting period, of a reinsurance agreement with National Indemnity Company (BH) (see para. 1.5.11 above).

Profit from property and other insurance totaled NIS 29 million during the reporting period, compared with NIS 23 million in the corresponding period last year, a 25% increase. The increase is mainly due to an improvement in the underwriting results, in both personal lines insurance and business insurance, as well to an increase in investment profit. 2.7 Capital market and financial services Income from the capital market and financial services sector, during the Reporting Period was NIS 119 million, compared with NIS 139 million for the corresponding period last year a 16.8% decrease. The decrease in income is mainly due to a decrease in income form the management of mutual funds as a result of the sectoral and other trends in the local and international markets, which were reflected in a reduction in the volume of assets under management compared with he corresponding period last year and a change in the mix of funds (and as a result the average management fees decreased) compared with the corresponding period last year. The volume of mutual funds assets under Group management was increased since the beginning of 2009, and the decrease trend in investments volume was inverted. Total income from mutual funds during the reporting period was NIS 85 million, compared with NIS 110 million in the corresponding period last year. The reporting period shows a continuous increase in the volume of revenues from mutual fund management, correlating with the increase in the volume of assets under management. The volume of assets under management in capital market and financial services area of activity totaled NIS 16.9 billion at September 30, 2009 compared with NIS 12.8 billion at December 31, 2008, an increase of NIS 4.1 billion. The source of the increase is an increase in assets under management in mutual funds (due to money raised as well as to an increase in value), and to the Group embarking on activity in ETFs during the first half of 2009 (during the reporting period Harel Sal issued 13 series of ETFs). These amounts include the assets of mutual funds in the amount of NIS 13.7 billion at September 30, 2009, compared with NIS 10.8 billion at December 31,

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2008 as well as ETF's assets, amounting to NIS 811 million as at September 30, 2009. The managed assets, excluding the assets of the ETF's company, are not included in the Company's consolidated balance sheets. The capital market and financial services sector recorded a loss of NIS 11 million for the Reporting Period, compared with a loss of NIS 87.3 million for the corresponding period last year. Performance for the corresponding period last year included a write down of the value of the mutual funds asset in the overall amount of NIS 78 million before tax. In addition, these results include financing expenses in respect of a loan from an associate which during the Reporting Period amounted to NIS 12.3 million, compared with NIS 13.9 million for the corresponding period last year. Performance in the capital market and financial services sector for the Reporting Period was affected by the company becoming involved in ETF activity (during the Reporting Period, Harel Sal issued 13 series of ETFs), which resulted in higher expenses of NIS 7.7 million. 3. Tax on income Total tax on income for the Reporting Period was NIS 176 million compared with NIS 31 million for the corresponding period last year. From January 1, 2008, the Company's consolidated financial statements are prepared in accordance with international accounting standards. The Tax Authority has not yet published its position regarding the repercussions of applying this standard on the tax liability. As far as the Company and its tax advisers are aware, these repercussions are likely to refer mainly to the distinction between payable tax and deferred tax and not to the total amount of tax included in the Statement of Income. In July 2009, the Knesset passed the Economic Efficiency (Legislative Amendments for Implementation of the Economic Plan for 2009 and 2010) Law, 5769-2009, which prescribed, inter alia, a further gradual reduction in the corporate tax rate to up to 18% in the 2016 tax year onwards. The effect of this change on the deferred tax balances will result in a net profit of NIS 21.5 million, which was credited to the income tax item for the three and nine-month periods ended at September 30, 2009. This change will not significantly affect the deferred tax balance credited directly to shareholders' equity. The change in the rate of capital gains tax had no significant impact on on- going taxes. 4. Liquidity and sources of financing 4.1 Cash flows Total net cash flows, which used for on-going activity, during the Reporting Period were NIS 345.56 million. The net cash flows that were used for investment activity totaled NIS 70.50 million. The net cash flows which resulted from financing activity totaled NIS 602.15 million. The impact of the fluctuations in the exchange rate on the balance of cash flows totaled a negative amount of NIS 2.65 million. The result of all this activity is being expressed by an increase in the cash balance in the amount of NIS 188.74 million. 4.2 Financing of activity In November 2008, the Company recruited two medium term line loans from banks in the total amount of NIS 400 millions, as follows: (a), a loan in the amount of NIS 200 millions from a bank for a period of eight years, to be repaid in twelve equal six-monthly installments after 30 months have passed. (b) a loan in the amount of NIS 200 millions from a bank for a period of three years, to be repaid in three equal six-monthly installments after 24 months have elapsed. Interest on the loan shall be repaid every six months from the date that the loan is received. The loans accrue variable NIS interest, based on a prime rate plus margin. The company committed to stand in financial standards, including standards that refer to equity and holdings in subsidiaries.

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In addition to the aforementioned loans, the Company and its controlled subsidiaries have short- term loans in the amount of NIS 116 million, as at September 30, 2009. The subsidiary, Harel Insurance, has long-term deferred liabilities deeds. At September 30, 2009, their balance is approx. NIS 949 millions. NIS 903 million of this amount is recognized as secondary capital according to Capital Regulations. The deferred liability notes were rated AA by Maalot, (see para. 1. 5.4).

5. Critical accounting estimates For information on changes in the accounting estimates following the transition to international standards - see Note 2 to the Financial Statements.

6. Dividend The Company did not distribute dividend during the Reporting Period. On March 30, 2009, the Commissioner instructed that from the financial statements for 2008 and up to December 2010, an insurance company and management company may only distribute a dividend with the advance approval of the Commissioner. As a rule, dividends may not be distributed if they exceed 25% of the profit permitted for allocation.

7. Quality report concerning exposure to market risks and ways of managing them There were no material changes during the Reporting Period.

8. Directors' compensation On March 9, 2009, the Commissioner published a circular concerning compensation for the external directors of institutional entities (see par. 1.9.1.26 above). Within the context of implementing the provisions of the circular, on May 31, 2009, the boards of directors of the Company and of Harel Insurance decided that for attending board of directors' meetings and board of directors' committee meetings, the external directors of the Harel Group's institutional entities (Harel Insurance and the institutional entities that it controls) and the directors who are not employed by the Group would be entitled to compensation for attending meetings according to the minimum amount prescribed in the Companies' (Rules Concerning Compensation and Expenses for an Outside Director) Regulations, 5760-2000, ("Compensation Regulations"). In addition, the directors will be entitled to a fixed annual compensation in line with the fixed rate of compensation prescribed in the Compensation Regulations for the entity with the largest volume of assets in which they serve in the Group. Implementation of this decision is expected to result in a certain increase in the expenses for Harel Insurance and the institutional entities it controls in respect of directors' fees.

9. D&O liability insurance At an extraordinary general meeting held on September 24, 2009, it was decided to approve an agreement reached between the Company and Harel Insurance to increase the scope of the cover in the D&O liability insurance policy in the amount of USD 30 million per event and per policy period and at an additional cost of up to USD 40,000, such that the new volume of cover is USD 100 million per event and combined per policy period. The D&O insurance of the Company and other companies in the Group may be renewed from time to time, provided that the following conditions

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are met: (a) the limits of liability under the policy shall be no more than USD 125 million per event and combined per policy period, the annual premium shall be no more than USD 1 million, and the Company's Board of Directors and Audit Committee must approve the policy and determine that the annual premium is at market conditions; (b) this decision shall be in force for 4 years (from the time that the insurance policy is first renewed according to this decision).

This decision also constitutes a master resolution, as defined in the Companies (Relief in Transactions with Principal Shareholders) Regulations, 5760-2000, allowing the insurance for directors and officers who are principal shareholders in the Company to be renewed, in line with the conditions specified above. Concerning the details of a D&O policy which existed until that time - see Chapter 4 of the Periodic Report, Article 22.

10. Senior executives 10.1 Resignation of the Company's Deputy CEO and CEO of Harel Insurance Pursuant to the Company's Immediate Report from July 12, 2009, in which context Mr. Motti Rosen announced his resignation as CEO of Harel Insurance and his other positions in the Company and its subsidiaries, on July 15, 2009 Mr. Motti Rosen stepped down as CEO of Harel Insurance and manager of the Company's finances. On that date, and after receiving the Commissioner's approval, Mr. Michel Siboni, who had served as head of the long-term savings division of the Harel Group, was appointed as CEO of Harel Insurance. Mr. Siboni was also appointed to replace Mr. Rosen as chairman of the Board of Directors of the subsidiaries of Harel Insurance that are provident funds and pension funds management companies. In addition, on July 15, 2009, Mr. Ronen Agassi CPA, who heads the finance department of Harel Insurance, was appointed as Company CFO replacing Mr. Motti Rosen who was responsible for the Company's finance department. Pursuant to the agreement reached with Mr. Motti Rosen, and which was approved by the Company's Audit Committee and Board of Directors, in respect of Mr. Rosen's undertaking not to compete with the Company's activity for 30 months from the date of terminating his tenure for the Company (an undertaking which was not part of his terms of employment with the Company), the Company will pay Mr. Rosen NIS 4 million. 10.2 Terms of service for the CEO of Harel Insurance As noted above, on July 12, 2009, the Board of Directors of the Company and of Harel Insurance decided to appoint Mr. Michel Siboni as CEO of Harel Insurance and Chairman of the Board of the subsidiaries of Harel Insurance which are pension fund and provident fund management companies. On November 30, 2009, after first receiving the approval of the Compensation Committee and the Audit Committee of the Company, the Board of Directors of the Company and of Harel Insurance approved the terms of employment for Mr. Michel Siboni, Harel Insurance CEO and Chairman of the Board of the subsidiaries of Harel Insurance, and this effective from August 1, 2009. Michel Siboni's monthly salary will be NIS 150,000. Mr. Siboni shall be entitled to an annual bonus to be determined each year, but no less than 4 salaries. In addition, Mr. Siboni shall be also entitled to an annually bonus in the amount of NIS 890 thousands, every year until 2013, and that is according to his previous position terms of service. Mr. Siboni will be entitled to severance pay when he terminates his employment for the Company at a rate of 100%, minus the amounts accrued to his credit in respect of severance pay in managers' insurance and/or the pension fund. Mr. Siboni will be entitled to additional severance pay at a rate of 100% in respect of the period from August 1, 2009 and until his employment for the company ends. Mr. Siboni will be entitled to 8 months

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advance notice. Mr. Siboni will also be entitled to related conditions as is customary for senior officers of the Harel Investments Group. Mr. Siboni undertook not to compete with the Company for a period of 60 months upon the termination of his employment for the Company. After his employment for the Company has terminated, Mr. Siboni will receive a further NIS 2.7 million, index linked, for this non-competition clause. In addition to the above, a further 44,150 share options were allotted to Mr. Siboni (in addition to 44,150 share options which were allotted to him on July 6, 2009), as specified in par. 1.7.5 above. At the allocation date, the value of the share options allotted to Mr. Siboni, calculated according to a binomial model, is NIS 2,665 thousands on November 30, 2009.

11. Details concerning the process of approving the Financial Reports The Company has a balance sheet committee which was appointed by its Board of Directors. The Balance Sheet Committee's task is to discuss and recommend approval of the financial statements to the Company's Board of Directors. The two outside directors, who have accounting and financial skills, who serve the Company, are members of the Balance Sheet Committee and in addition to them other directors are also members of the committee, most of who are recognized by the Company's Board of Directors as possessing accounting and financial expertise. The members of the Balance Sheet Committee are: Mr Yair Hamburger, Company CEO and chairman of the BOD, Mr. David Granot (Outside Director), Dr. Eliezer Wolf (Outside Director), Ms. Leora Kavoras-Hadar, Mr. Doron Cohen, and Mr. Ben Hamburger. The Company’s auditors and CPA are invited to meetings of the Balance Sheet Committee as well as to meetings of the Board of Directors that discuss and approve the financial statements, and they present the principal findings, inasmuch as there are any, that arose during the course of the audit or review. The meetings are also attended by various entities from the Company's and the Group's management. A detailed review of the material issues in the financial statements is presented to the Balance Sheet Committee. This review includes material transactions that are not part of the normal course of business, insofar as there are any, the material assessments and critical estimates that were implemented in the financial statements, the reasonability of the data, the accounting policy that was applied and the changes that occurred in it, as well as implementation of the principle of fair disclosure in the financial statements and related information. Moreover, a review is presented to the Balance Sheet Committee of any subjects that were raised as part of the process of implementing the controls and risk management, the effectiveness of the controls with respect to their disclosure in the Company's subsidiaries to which the Commissioner's provisions apply in connection with SOX 302. This review is presented by the chairman of the Company's Board of Directors and CEO, Mr. Yair Hamburger, as well as by VP Finance, Mr. Ronen Agassi. The Balance Sheet Committee reviews various aspects of control and risk management, both those that are reflected in the financial statements, and those that affect the reliability of the financial statements. In addition, the Balance Sheet Committee may also request that other issues are reviewed and presented to it, at the discretion of the Committee's members. The draft financial statements are submitted to the members of the Balance Sheet Committee and the members of the Board of Directors several days before the date of the meeting scheduled to discuss them. The Balance Sheet Committee's meeting takes place first and immediately before the Board of Directors' meeting, which discusses and approves the financial statements.

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During the Company's Board of Directors' meeting to approve the financial statements, the Company's financial results are reviewed and the changes that have occurred during the reporting period are presented. During the Board of Directors' discussion, the Board members raise questions concerning issues that arose during the course of the audit and whether the financial statements faithfully represent the Company's financial situation. The questions and issues that are discussed are answered as necessary both by the CFO and by the CPA. After the discussion, the chairman of the Board submits approval of the financial statements to a vote.

The Board of Directors wishes to thank the Group's employees and agents for their contribution to the Group's achievements

Y. Hamburger G. Hamburger Chairman of the Board of Board of Directors Member Directors, CEO

November 30, 2009

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Harel Insurance Investments & Financial Services Ltd.

Interim Consolidated Financial Statements As at September 30, 2009 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Somekh Chaikin

KPMG Millennium Tower Telephone: 03-684 8000 17 Ha'arbaa Street, P.O. Box 609 Fax: 03-684 8444 Tel-Aviv 61006 Internet: www.kpmg.co.il

Review Report of the Auditors of Harel Insurance Investments and Financial Services Ltd. Introduction

We reviewed the attached financial information of Harel Insurance Investments and Financial Services Ltd. and its subsidiaries (hereinafter - “the Group”) which include the condensed interim consolidated statement of financial position as at September 30, 2009 and the interim consolidated statements of income, comprehensive income (loss), changes in equity and cash flows for the periods of nine and three months then ended. The Board of Directors and management are responsible for the preparation and presentation of the financial information for this interim periods pursuant to Chapter D of the Securities Regulations (Periodic and Immediate Report) - 1970, as far as this regulations applied to insurance companies, subject to the requirements of the Commissioner of Insurance under the Law for the Supervision of Financial Services (Insurance) - 1981 and according to the Regulations issued under that law. Our responsibility is to express a conclusion on the financial information for the interim periods, based on our review.

We did not review the condensed financial information for the interim periods of consolidated companies whose assets included in the consolidation comprise 9.31% of all the consolidated assets as at September 30, 2009 and whose revenues included in the consolidation comprise 9.42% and 9.91% of all consolidated revenues for the periods of nine and three months then ended, respectively. Moreover, we did not review the financial information for interim periods of investee companies handled by the equity method in which the investment in them is NIS 111,138 thousand as at September 30, 2009, and the Group’s share in their profits is NIS 11,682 thousand and NIS 3,592 thousands for the periods of nine and three months then ended, respectively. The condensed financial information for the interim periods of those companies were reviewed by other auditors whose review report was furnished to us and our conclusions, to the extent that they relate to financial information for those companies, are based on the review reports of the other auditors .

Scope of the review We performed our review in accordance with Review Standard 1 of the Institute of Certified Public Accountants in Israel “Review of financial information for interim periods performed by the entity’s auditor”. The review of the financial information for interim periods comprises clarifications, mainly with the people responsible for financial and accounting matters, and from adopting analytical and other review procedures. A review is far more limited in scope than an audit performed in accordance with generally accepted auditing standards, and therefore does not enable us to be confident that we will know of all the significant matters which could have been identified in an audit. Consequently, we are not issuing an opinion of an audit.

Somekh Chaikin, a partnership registered according to the Partnerships Ordinance, is a member of the KPMG International Cooperative, registered in Switzerland. 1 -2 -2 1

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Somekh Chaikin

KPMG Millennium Tower Telephone: 03-684 8000 17 Ha'arbaa Street, P.O. Box 609 Fax: 03-684 8444 Tel-Aviv 61006 Internet: www.kpmg.co.il

Conclusion Based on our review, and on the review report of the other auditors, nothing came to our notice which would cause us to think that the above financial information is not prepared, from all significant aspects, in accordance with International Accounting Standard IAS34.

In addition to the remark in the previous paragraph, based on our review and on the review reports of the other auditors, nothing came to our attention which cause us to think that the above financial information does not meet, from all significant aspects, the provisions of Pronouncement under Chapter D of the Securities Regulations (Periodic and Immediate Reports) – 1970, as far as this regulations applied to insurance companies, and subject to the disclosure requirements issued by the Commissioner of Insurance under the Law for the Supervision of Financial Services (Insurance) 1981 and according to the Regulations issued under it.

Without qualifying our above conclusions, we direct attention to Note 6a to the interim consolidated financial statements regarding the exposure to class actions and the request to approve them as class actions.

Somekh Chaikin Certified Public Accountants November 30, 2009

Somekh Chaikin, a partnership registered according to the Partnerships Ordinance, is a member of the KPMG International Cooperative, registered in Switzerland.

2 -2 -2 2

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Harel Insurance Investments & Financial Services Ltd. Interim consolidated statements on the financial position

September 30 December 31 2009 2008* 2008 (Unaudited) (Unaudited) (Audited) Thousand NIS

Assets Intangible assets 1,509,758 1,563,948 1,515,899 Deferred tax assets 62,654 83,164 78,585 Deferred acquisition costs 1,148,087 1,105,452 1,088,605 Fixed assets 413,732 428,158 425,572 Investments in equity accounted investee companies 115,931 114,629 109,697 Real estate investments - yield dependent contracts 422,819 429,116 435,306 Other real estate investments 757,652 757,041 743,684 Reinsurance assets 4,523,159 3,849,910 3,835,078 Current tax assets 60,569 67,418 83,200 Other receivables 295,556 342,261 228,670 Outstanding premiums 886,382 897,933 797,687 Financial assets - yield dependent contracts 14,675,098 11,939,161 11,075,342 Other financial investments Marketable debt assets 5,253,059 3,541,405 3,845,589 Non-marketable debt assets 7,433,624 7,208,369 7,219,985 Shares 779,865 285,176 191,596 Other investments 1,478,096 665,192 843,345

Total other financial investments 14,944,644 11,700,142 12,100,515

Cash and cash equivalents pledged for ETFs holders 25,760 1,993 1,135

Cash and cash equivalents - yield dependent contracts 454,078 295,037 354,452 Other cash and cash equivalents 1,209,958 772,590 1,120,847

Total assets 41,505,837 34,347,953 33,994,274

Total assets - yield dependent contracts 15,871,503 12,966,014 12,158,948

* Regarding reclassification see Note 2(c). The Notes accompanying the interim consolidated financial statements are an integral part thereof. 3 -2 -2 3

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Harel Insurance Investments & Financial Services Ltd. Interim consolidated statements on the financial position

September 30 December 31 2009 2008* 2008 (Unaudited) (Unaudited) (Audited) Thousand NIS Equity and liabilities Equity Share capital and share premium 140,130 140,072 140,072 Treasury shares (89,156) (87,365) (87,365) Capital reserves 220,524 (57,235) (23,221) Retained earnings 2,718,533 2,638,260 2,367,270 Total equity attributed to company shareholders 2,990,031 2,633,732 2,396,756 Minority rights 106,315 77,171 81,452 Total equity 3,096,346 2,710,903 2,478,208 Liabilities

Liabilities in respect of non-yield dependent insurance and investment contracts 18,124,773 16,218,344 16,375,868

Liabilities in respect of yield dependent insurance and investment contracts 15,600,917 12,417,266 11,622,874 Deferred tax liabilities 284,662 247,883 96,752 Net liabilities for employee benefits 210,364 192,578 197,696 Current tax liabilities 15,652 12,435 14,531 Creditors and credit balances 1,788,859 1,516,074 1,624,701 ETF's liabilities 808,440 3,130 1,105 Financial liabilities 1,575,824 1,029,340 1,582,539 Total liabilities 38,409,491 31,637,050 31,516,066 Total equity and liabilities 41,505,837 34,347,953 33,994,274

Y. Hamburger G. Hamburger R. Agassi Chairman of the Board and Member of the Board Assistant Director Manager Managing Director and Chief Financial Officer Date of approval of the Financial Statements: November 30, 2009. *Regarding reclassification see Note 2(c). The notes accompanying the interim consolidated financial statements are an integral part thereof. 4 -2 -2 4

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Harel Insurance Investments & Financial Services Ltd. Consolidated interim statements of income

Nine-months period ending Three-months period ending Year ending September 30 September 30 December 31 2009 2008* 2009 2008* 2008 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Thousand NIS Premiums earned, gross 5,368,201 5,290,920 1,912,138 1,797,490 7,217,723 Premiums earned by reinsurers 970,465 842,573 371,329 318,825 1,101,964 Premiums earned in retention 4,397,736 4,448,347 1,540,809 1,478,665 6,115,759 Net profit (loss) from investments and financial income 4,259,106 (609,362) 1,343,214 (684,287) (1,986,123) Income from management fees 400,876 384,601 147,405 132,202 501,248 Income from commissions 244,034 184,993 85,555 74,092 247,546 Other income 1,502 33,142 480 587 34,717 Total income 9,303,254 4,441,721 3,117,463 1,001,259 4,913,147 Payments and changes in liabilities for insurance and investment contracts, gross 8,325,743 3,561,355 2,936,864 800,040 4,046,598 Reinsurers' share in payments and changes for insurance contracts liabilities 1,054,256 659,855 431,275 293,759 868,233 Payments and changes in liabilities for insurance and investment contracts, in retention 7,271,487 2,901,500 2,505,589 506,281 3,178,365 Commission, marketing and other acquisition expenses 884,882 836,246 309,149 297,106 1,162,788 Management and general expenses 486,597 480,804 164,292 166,096 614,908 Other expenses 36,193 121,480 11,141 92,989 195,754 Financing expenses 90,301 68,121 38,985 46,010 113,725 Total expenses 8,769,460 4,408,151 3,029,156 1,108,482 5,265,540 Company share of profit (loss) of investee companies recorded by the equity method 12,794 1,138 4,704 (696) (3,480) Profit (loss) before income taxes 546,588 34,708 93,011 (107,919) (355,873) Income taxes (benefits) 176,166 31,003 5,488 (27,694) (91,133) Net profit (loss) for the period 370,422 3,705 87,523 (80,225) (264,740) Attributed to: Company shareholders 351,263 (8,352) 80,797 (84,303) (279,342) Minority rights 19,159 12,057 6,726 4,078 14,602 Net profit (loss) for the period 370,422 3,705 87,523 (80,225) (264,740) Basic earnings (loss) per share, attributed to company shareholders (expressed in NIS) 17.08 (0.40) 3.93 (4.07) (12.66) Weighted number of shares used to calculate the above (in thousands) 20,562 21,035 20,558 20,705 20,917

* Regarding reclassification see Note 2(c). The notes accompanying the interim consolidated financial statements are an integral part thereof. 5 -2 -2 5

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Harel Insurance Investments & Financial Services Ltd.

The interim consolidated statement of comprehensive profit (loss)

Nine -months period ending Three -months period ending Year ending September 30 September 30 December 31 2009 2008* 2009 2008* 2008 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Thousand NIS

Profit (loss) for period 370,422 3,705 87,523 (80,225) (264,740)

Profit (loss) including other:

Revaluation of fixed assets, net - 5,664 - - 5,664

Net changes in fair value of financial assets available for sale 406,862 (300,764) 128,024 (226,446) (509,784)

Net changes in fair value of financial assets available for sale transferred to statement of income (55,170) (31,842) (50,520) (20,411) (2,445)

Loss from impairment in value of financial assets available for sale transferred to statement of income 25,572 169,636 1,681 96,076 397,329

Foreigen currency transaction's difference in respect of overseas operations 1,713 (5,874) (343) (3,075) (3,290)

Taxes on income for other components of comperhensive profit (loss) (131,413) 57,065 (26,675) 51,224 41,350

Profit (loss) including other for the period, tax net 247,564 (106,115) 52,167 (102,632) (71,176)

Total profit (loss) for thr period 617,986 (102,410) 139,690 (182,857) (335,916)

Attributed to: Company shareholders 593,123 (111,950) 132,300 (184,288) (348,737) Minority rights 24,863 9,540 7,390 1,431 12,821 Total net profit (loss) for the period 617,986 (102,410) 139,690 (182,857) (335,916)

* Regarding reclassification see Note 2(c).

The notes accompanying the interim consolidated financial statements are an integral part thereof.

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Harel Insurance Investments & Financial Services Ltd. Interim Consolidated Financial Statements regarding capital changes

Attributed to company shareholders Capital reserve in Capital respect of Translation reserve in assets of foreign respect of Share capital available for operations share based Treasury Retained Minority and premium sale fund payment stock earnings Total rights Total equity Thousand NIS For nine-months period ended on September 30, 2009 Balance as at January 1, 2009 (Audited) 140,072 (19,539) (3,682) - (87,365) 2,367,270 2,396,756 81,452 2,478,208 Total comprehensive income - 240,177 1,683 - - 351,263 593,123 24,863 617,986 Share based payment - - - 1,885 - - 1,885 - 1,885 Purchase of treasury stock - - - - (2,302) - (2,302) - (2,302) Reissuing of treasury stock 58 - - - 511 - 569 - 569 Balance as at September 30, 2009 (Unaudited) 140,130 220,638 (1,999) 1,885 (89,156) 2,718,533 2,990,031 106,315 3,096,346

For three-months period ended on September 30, 2009 Balance as at July 1, 2009 (Unaudited) 140,093 168,787 (1,651) - (88,416) 2,637,736 2,856,549 98,925 2,955,474 Total comprehensive income - 51,851 (348) - - 80,797 132,300 7,390 139,690 Share based payment - - - 1,885 - - 1,885 - 1,885 Purchase of treasury stock - - - - (1,181) - (1,181) - (1,181) Reissuing of treasury stock 37 - - - 441 - 478 - 478 Balance as at September 30, 2009 (Unaudited) 140,130 220,638 (1,999) 1,885 (89,156) 2,718,533 2,990,031 106,315 3,096,346

The notes accompanying the interim consolidated financial statements are an integral part thereof.

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Harel Insurance Investments & Financial Services Ltd. Interim Consolidated Financial Statements regarding capital changes Attributed to company shareholders Capital reserve in respect of Translation assets of foreign Share capital available for operations Treasury Retained Minority and premium sale fund stock earnings Total rights Total equity Thousand NIS For nine-months period ended on September 30, 2008 Balance as at January 1, 2008 (Audited) 140,072 51,019 (408) - 2,742,439 2,933,122 71,481 3,004,603 Total comprehensive income - (101,972) (5,874) - (4,104) (111,950) 9,540 (102,410) Purchase of treasury stock - - - (87,365) - (87,365) - (87,365) Dividends paid - - - - (100,075) (100,075) (3,850) (103,925) Balance as at September 30, 2008 (Unaudited) 140,072 (50,953) (6,282) (87,365) * 2,638,260 2,633,732 77,171 2,710,903

For three-months period ended on September 30, 2008 Balance as at July 1, 2008 (Unaudited) 140,072 45,957 (3,207) - 2,722,563 2,905,385 79,590 2,984,975 Total comprehensive income - (96,910) (3,075) - (84,303) (184,288) 1,431 (182,857) Purchase of treasury stock - - - (87,365) - (87,365) - (87,365) Dividends paid ------(3,850) (3,850) Balance as at September 30, 2008 (Unaudited) 140,072 (50,953) (6,282) (87,365) * 2,638,260 2,633,732 77,171 2,710,903

For the year ended on December 31 2008 Balance as at January 1, 2008 (Audited) 140,072 51,019 (408) - 2,742,439 2,933,122 71,481 3,004,603 Total comprehensive income - (70,369) (3,274) - (275,094) (348,737) 12,821 (335,916) Purchase of treasury stock - - - (87,365) - (87,365) - (87,365) Dividends paid - - - - (100,075) (100,075) (3,850) (103,925) Consolidation of a company for the first time - (189) - - - (189) 1,000 811 Balance as at December 31, 2008 (Audited) 140,072 (19,539) (3,682) (87,365) * 2,367,270 2,396,756 81,452 2,478,208

* Regarding reclassification see Note 2(c). The notes accompanying the interim consolidated financial statements are an integral part thereof. -2 8-2 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Harel Insurance Investments & Financial Services Ltd.

Interim Consolidated Financial Statements regarding cash flows Nine-months period ending Three-months period ending Year ending September 30 September 30 December 31 2009 2008* 2009 2008* 2008 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Appendix Thousand NIS Cash flows from operating activities before taxes on income A (278,920) 209,074 (293,486) 42,267 * 200,537 Income tax paid (66,635) (101,177) 19,187 (50,656) (104,888) Net cash provided by (used for) current activities (345,555) 107,897 (274,299) (8,389) 95,649

Cash flows from investing activities Investmentininvesteecompanies - - - - (424) Cash used for the acquisition of a consolidated company, consolidated for the first time D - (90,965) - (90,965) (108,962) CashUsedfortheacquisitionofa consolidatedcompany,consolidated bytheproportionalconsolidation E - 12,748 - 12,748 (22,679) Loan given to an investee company - (191) - (63) - Payment of loan given to an investee company 154 - - - - Investment of fixed assets (19,654) (31,088) (7,909) (11,463) (37,948) Investment in intangible assets (51,714) (73,660) (15,267) 52,810 (102,466) Dividends from investee company 497 771 - 400 1,459 Proceeds from sale of fixed assets 214 2,319 214 477 2,420 Net cash used for investing activities (70,503) (180,066) (22,962) (36,056) (268,600)

Cash flows for financing activities Dividendpaidtominorityinterests - (3,850) - (3,850) (3,850) AcquisitionofTreasurystock (1,733) (87,365) (703) (87,365) (87,365) ProceedsfromissueofETF's 642,995 151 212,882 151 1,845 Short-term Loans from banks (36,803) 5,540 11,593 5,540 * 54,836 Loans from banks and others - - - - * 540,354 Repayments of loans from banks and (2,310) (32,059) (1,454) (7,449) (118,338) Dividends paid - (100,075) - - (100,075) Net cash provided by (used for) financing activities 602,149 (217,658) 222,318 (92,973) 287,407 Effectoffluctuationsincurrency exchangerateonbalancesofcash andcashequivalents 2,646 (14,461) (707) (12,659) (11,072) equivalents 188,737 (304,288) (75,650) (150,077) 103,384 Cash and cash equivalents, beginning of period B 1,475,299 1,371,915 1,739,686 1,217,704 1,371,915 Cash and cash equivalents, end of period C 1,664,036 1,067,627 1,664,036 1,067,627 1,475,299

*Regarding reclassification see Note 2(c). The notes appended to the condensed interim consolidated statements are an inseparable part of the reports. 9 -2 -2 9

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Harel Insurance Investments & Financial Services Ltd. Interim Consolidated Financial Statements regarding cash flows Nine -months period ending Three -months period ending Year ending September 30 September 30 December 31 2009 2008* 2009 2008* 2008 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Thousand NIS Appendix A - Cash flows from operating activities before taxes on income (1) Profit (loss) for period 370,422 3,705 87,523 (80,225) (264,740) Items not involving cash flows Company’s share of loss (profit) of investee companies recorded on the equity basis (12,794) (1,138) (4,704) 696 3,480 Losses (profit) - financial investments - yield dependent insurance policies and investment contracts, net (2,677,199) 1,651,828 (734,032) 1,021,263 2,466,856 Net losses (profits) from other financial investments Marketable debt assets (373,346) (11,168) (162,441) 24,533 157,387 Non-marketable debt assets (244,636) (236,166) (152,195) (59,477) (270,925) Shares (121,031) 76,539 (119,664) 40,984 165,200 Other investments (65,953) 61,121 (48,536) 30,939 (68,747) Financing expenses for financial liabilities 180,075 103,914 90,291 90,178 120,158 Net losses (profits) from realizations Fixed assets (45) (787) 46 45 * (858) Changes in fair value of real estate for investment - for yield dependent contracts 5,034 2,114 6,351 - (3,825) Changes in fair value of other real estate investment (1,199) (11,961) 575 (4,667) * (2,341) Decrease in value of intangible assets 1,689 - - - 133,522 Depreciation and amortization Fixed assets 31,360 23,867 7,983 8,621 33,358 Intangible assets 56,316 144,028 16,397 87,938 88,548 Change in liabilities for non yield dependent insurance and investment contracts 1,748,906 1,440,457 704,986 374,382 1,582,872 Change in liabilities for yield dependent insurance and investment contracts 3,972,996 (423,176) 1,248,786 (564,502) (1,217,568) Change in reinsurance assets (636,895) (253,993) (255,615) (207,831) (2,152,258) Change in deferred acquisition costs (59,284) (71,659) 30 (20,807) (54,709) Share based payment 1,885 - 1,885 - - Income taxes 176,166 31,003 5,488 (27,694) (91,133) Changes in other balance sheet items: Financial investments and real estate for investment for yield dependent - insurance policies and investment contracts Acquisition of real estate for investment (61,858) (128,551) (1,367) (124,019) (128,803) Proceeds from the sale of real estate for investment 69,312 - - - - Net acquisitions of financial investments (973,021) (1,023,493) (530,315) (448,443) 941,684 Other financial investments and real estate for investment Acquisition of real estate for investment (38,333) (46,932) (57) (46,485) (42,914) Proceeds from the sale of real estate for investment 25,570 38 - 38 38 Acquisitions net, of financial investments (1,807,453) (706,810) (524,199) (93,680) * (1,363,438) Outstanding premiums (88,133) (100,481) 63,951 (47,219) 993 Other receivables (60,158) (9,274) 12,729 (22,821) * 104,225 Cash and cash equivalents pledged for ETFs holders (24,625) (1,993) 19,812 (1,993) * (1,335) Other payables 162,160 (289,610) (27,332) 107,981 (123,356) Changes in other tax items 152,511 (37,297) (359) (14,878) * 159,128 Liabilities for employee benefits, net 12,641 24,949 497 19,410 30,038 Total adjustments required to present cash flows from operating activities (649,342) 205,369 (381,009) 122,492 465,277 Total cash flows from operating activities, before taxes on income (278,920) 209,074 (293,486) 42,267 200,537

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Harel Insurance Investments & Financial Services Ltd. Interim Consolidated Financial Statements regarding cash flows (1) Cash flow from current activity includes net purchases and sales of financial investments resulting from the activity in insurance contracts and investment contracts. (2) In the framework of current operations, interest received in an amount of NIS 427 million (as at September 30, 2008 an amount of NIS 386 million, and as at December 31, 2008 an amount of NIS 539 million) and interest paid in an amount of NIS 23 million (as at September 30, 2008 an amount of NIS 23 million and as at December 31, 2008 an amount of NIS 59 million). (3) In the framework of current operations a dividend received from other financial investments was presented in an amount of NIS 9 million (as at September 30, 2008 an amount of NIS 14 million, and as at December 31, 2008 an amount of NIS 16 million).

*Regarding reclassification see Note 2(c).

The notes appended to the condensed interim consolidated statements are an inseparable part of the reports.

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Harel Insurance Investments & Financial Services Ltd. Interim Consolidated Financial Statements regarding cash flows

Nine-months period ending Three-months period ending Year ending September 30 September 30 December 31 2009 2008* 2009 2008* 2008 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) Thousand NIS Appendix B - Cash and cash equivalents, beginning of the period Cash and cash equivalents for yield dependent contracts 354,452 286,597 489,639 428,360 286,597 Other cash and cash equivalents 1,120,847 1,085,318 1,250,047 789,344 1,085,318

Cash and cash equivalents, beginning of year 1,475,299 1,371,915 1,739,686 1,217,704 1,371,915

Appendix C - Cash and cash equivalents, end of year Cash and cash equivalents for yield dependent contracts 454,078 295,037 454,078 295,037 354,452 Other cash and cash equivalents 1,209,958 772,590 1,209,958 772,590 1,120,847

Cash and cash equivalents, end of year 1,664,036 1,067,627 1,664,036 1,067,627 1,475,299

Appendix D - Cash used on acquisition of consolidated companies Assets and Liabilities, at the time of control: Real estate for investments - - - - (322) Reinsurance assets - - - - (2,686) Other receivable - - - - (520) Outstanding premiums - - - - (647) Other financial investments - - - - (20,777) Liabilities in respect of non-yield dependent insurance and investment contracts - - - - 8,503 Net liabilities for employee benefits - - - - 11 Other payables - 1,165 - 1,165 4,165 Minority interests - - - - 1,000 Cost of acquisition in excess of equity - (92,130) - (92,130) (97,689)

- (90,965) - (90,965) (108,962)

Appendix E - Cash withdrawn due to the acquisition of subsidiary consolidated in the past by proporional consolidation Assets and Liabilities, at the time of control: Real estate for investments - (62,000) - (62,000) (62,000) Other receivable - (152) - (152) (76) Deferred tax liabilities - 19,324 - 19,324 9,633 Other payables - 61,836 - 61,836 1,635 Financial liabilities - - - - 29,865 Cost of acquisition in excess of equity - (6,260) - (6,260) (1,736)

- 12,748 - 12,748 (22,679)

* Regarding reclassification see Note 2(c). The notes appended to the condensed interim consolidated statements are an inseparable part of the reports. -2

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Harel Insurance Investments & Financial Services Ltd.

Notes to the Interim Consolidated Financial Statements

Note 1 - General

A. The Reporting Entity

Harel Insurance Investment and Financial Services Ltd. ("company") is a company located and registered in Israel. Shares of the company are traded on the Tel Aviv Stock Exchange. The official address of the company is 3 Abba Hillel St., Ramat-Gan. The Company is a holding company whose main holdings are in consolidated companies that are insurance and financial services companies. The consolidated financial statements as at September 30, 2009 include the financial statements of the Company and those of its subsidiaries as well as the Group's rights in affiliates and in entities under co-control ("the Group"). The consolidated interim financial statements primarily reflect the assets, liabilities and activities of the consolidated insurance companies, and accordingly they are prepared in a similar manner.

Note 2 - Financial Statement Preparation Basis

A. Declaration on meeting International Financial Reporting Standards The consolidated interim financial statement were prepared according to the International Accounting Standard 34 Interim Financial Reporting and in accordance with the requirements for disclosure as determined by the Insurance Commissioner according to the Financial Services (Insurance) Control Law, 5741-1981 and does not include all the data required for complete annual statements. It must be read together with the consolidated financial statements for the year ending on 31 December 2008 ("annual financial statements"). This statements were prepared according to the provisions of Chapter 4 to the Securities Law Regulations (Periodic and Immediate Statements), 5729-1970 The consolidated interim financial statement was authorized for publication by the Company's Board of Directors on November 30, 2009.

B. Use of Estimates and Discretion In preparing the financial statement in accordance with all IFRS requirements, management is required to use discretion in its evaluations, estimates, and assumptions, including actuarial assumptions and estimates ("estimates") that affect the application of accounting policy, and the values of assets and liabilities, and on income and expenses. It is noted that the actual results may differ from these estimates. The major estimates included in the financial statements are based on actuarial estimates and on external valuation reports. When making accounting and actuarial estimates to be used in the preparation of the Gruop's financial statements, company management is required to make certain assumptions regarding circumstances and events, which involve significant uncertainty. While using discretion in determining the estimates, company management also considers experience, facts, external factors, and the assumption of reasonability regarding the circumstances appropriate for each estimate. The estimates and the assumptions they are based on, are reviewed regularly. Changes in the accounting estimates for the period, in which they were applied and for all future periods affected, are recognized. The estimates and considerations, which management applies for the purpose of implementing its accounting policies and preparing the financial statements, were basically consistent with those used for preparing the consolidated financial statements as at December 31, 2008.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 2 - Financial Statement Preparation Basis (cont'd) Share-based payment transactions The fair value of option warrants to employees is measured using the binomial model. The assumptions on which the model is based include the price of the share on the date of measurement, the price of exercising the instrument, the expected fluctuations (on the basis of the weighted average of historic fluctuations adjusted to expected changes as a result of information available to the public), the weighted average of the expected lifespan of the instruments (based on management's evaluations) and the zero risk rate of interest (based on government bonds). The terms of service and the performance conditions, which are not market conditions, are not taken into account at the time of determining fair value. C. Reclassifications These condensed interim financial statements include a reclassification for the nine and three-months periods ended on September 30, 2008. The reclassifications were made, further to the Commissioner's provisions pursuant the transition to the IFRS. The main reclassifications relate to the presentation of yield- depending liabilities according to their financial exposure, classification of management and general expenses. In addition a reclassification was done between current tax assets and other receivables, intercompany expenses were cancelled in the financial segment and concurrently investment profit and other segments were cancelled, the gross premiums earned in the general insurance segment were reduced against a reduction in payment of changes in the liabilities for insurance contracts and gross investment contracts cash and cash equivalents pledged for holders of Traded Fund Certificates (“TFC”) were separated from the other financial investments items, liabilities for the TFCs and cover options were separated from the financial liabilities item and the reevaluation fund regarding surplus item was classified. The classifications made did not have an effect on the Group's capital or profits. D. Liabilities for ETFs and cover options The liabilities for ETFs is an integrated financial instrument, which include a hosting contract and embedded derivative. Accordingly, the Group separate between the hosting contract (ETFs which are debt instrument) and the embedded derivative. The hosting contract is measured at reduced cost on every reporting date less the balance of issue expenses not yet amortized. The embedded derivative is measured at fair value. As the basket certificates are a saleable instrument that can be resold at any given time, the effect on separating an embedded derivative and the and accounting treatment of every component is to measure the combined instruments at the redemption amount payable on the balance sheet date, without considering the conversion commission, less the balance of issue expenses. The issue expenses relate to the hosting contract, as the value of the embedded derivative on the issue date is zero. These issue expenses are amortized over the life of the relevant series. The Group periodically examines this estimated life. In the framework of the issue of the basket certificate by the subsidiary, an acquisition of the Company's shares is prepared to cover the ETFs. This acquisition is handled as treasury stock. E. Share-based payments transactions The fair value on the date of granting the capital instruments to employees is recorded as a salary expense concurrently with an increase in retained earnings over the period during which the employees' entitlement to the capital instrument is achieved (hereinafter: "the Vesting Period"). The fair value is determined using the binomial model. The amount recorded as an expense is adjusted in order to reflect the number of capital instruments which are expected to vest. The cost of the transactions settled with capital instruments are recognized in the statement of income, together with an equivalent increase in capital over the period during which the terms of performance and/or service take place and ends on the date on which the relevant employees are entitled to compensation. The accumulated expense is recognized for transactions settled with capital instruments on every reporting date up to the date of vesting, which reflects the extent that the vesting period has passed and the Group's best possible estimate regarding the number of capital instruments which will vest in the end. The debit or credit in the statement of income reflects the change in accumulated expenses recognized at the beginning and the end of the reporting period.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 2 - Financial Statement Preparation Basis (cont'd)

E. Share-based payments transactions (cont'd) An expense for granting which do not vest in the end is not recognized, excluding grants for which vesting is dependent on market conditions, which are handled as grants vested without any connection to the existence of market conditions, on the assumption that all the other vesting terms (service and/or performance) have been fulfilled. F. Impairment in value of securities An impairment in the value of a financial asset is examined when there is objective proof that one of more events negatively affect the future estimated cash flows of the asset. On examining an impairment in the value of financial assets available for sale, which are capital instruments, the Group examines whether there is a difference in the fair value of the asset and its original cost, while relating to the standard deviation in the rate of the instrument, the period of time during which the fair value of the asset is lower than its original cost, and changes in the technological, economic or legal environment or in the market environment in which the Company that issued the instrument operates. A loss from an impairment in value of a financial asset measured at reduced cost is calculated as the difference between the value of the asset in the books and the present value of the estimated future cash flows, discounted at the original effective rate of interest. A loss from an impairment in value of a financial asset classified as available for sale is calculated based on its present fair value. For significant financial assets, the need for an impairment in value is examined on the basis of each asset separately. For the other financial assets, the need for an impairment in value is examined collectively, according to the Group which have similar credit risk characteristics. All the losses from an impairment in value are recorded to the statement of income. An accumulated loss relating to a financial asset classified as available for sale, which was recorded in the past to capital, was transferred to the statement of income when an impairment in value for it took place. A loss from an impairment in value is cancelled when it can objectively be related to an event which occurred after recognition of the loss from the impairment in value. Cancellation of a loss from an impairment in value of financial assets measured at reduced cost and for financial assets classified as available for sale, which are debt instruments, is recorded to the statement of income. In addition, for financial assets classified as available for sale, which are debt instruments, should there no longer be objective proof of an impairment in value, the loss from an impairment in value is fully cancelled and recorded to the statement of income, and the accumulated present loss (the difference between the fair value and cost) is recognized to capital. Cancellation of the loss of impairment in value for financial assets classified as available for sale, which are capital instruments, is recorded directly to capital. Note 3 - Significant accounting principles Excluding as detailed in clause A below, the Group's accounting principles in the interim consolidated financial statements are the principles adopted in the annual financial statements. The following is a description of the nature of the changes made in the accounting principles in these interim consolidated financial statements and their effect. A. First application of new standards 1. IAS 1 - Presentation of financial statements As from January 1, 2009, the Group has adopted IAS 1 - "Presentation of Financial Statements: Amended, (hereinafter: "the Standard"). The Standard enables the presentation of a single statement of comprehensive income (a combined statement of income and other comprehensive income) or presentation in two statements - a statement of income and a separate statement of comprehensive income. The Group chose to present items of revenues and expenses and items of other comprehensive income in the framework of two separate statements - a statement of income and thereafter a statement of comprehensive income. In addition, the Group presents a statement of changes in shareholders' equity instead of disclosure in the framework of notes, immediately after the statement of comprehensive income. The Standard is adopted retrospectively.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 3 - Significant accounting principles (cont'd) A. First application of new standards (cont'd) 2. Real estate for investment As from January 1, 2009, the Group has adopted the amendment to IAS 40 "Real Estate for Investment" (hereinafter: "the Standard") which was carried out in the framework of a project for improvements in 2008, which stipulates that real estate for investment during the period of establishment and/or the development will be measured according to the provisions of IAS 40 and not according to the provisions of IAS 16 regarding fixed assets. The adoption of the Standard was done by way of 'from here on'. The Group measures real estate for investment according to the fair value model and, therefore, measures its real estate for investment under construction as follows: (1) At fair value - when it is possible to reliably measure the fair value of real estate for investment under construction; and (2) When it is not possible to reliably measure fair value at cost during the period of construction until the date of completing the construction and the date in which possible to reliably measure the fair value. The Group recognizes the difference between the fair value and the book value as at January 1, 2009 of Real estate for investment under construction in a statement of income. The first application of the standard has no material effect over the consolidated interim statements. 3. IAS 19 (Amended) - Benefits to employees As from January 1, 2009, the Group is implementing the amendment to IAS 19 "Benefits to Employees" (hereinafter: "the Amendment"), which was carried out in the framework of the project for improvements for 2008. According to the classification of the benefits to employees, as short-term benefits or as other long-term benefits, it will be carried out according to the date in which the liability is to be paid. Consequently, certain benefits were classified as short-term benefits. Adoption of the Standard was done retrospectively. First adoption of the Standard does not have any significant effect on the interim consolidated financial statements. 4. IFRS 3 (Revised 2008) "Business combinations and Amendment to IAS 27 of 2008, consolidated and separate financial statements (hereinafter: "the Standards"). The main regulatory changes in the Standards are: a. The definition of a business has been expanded which will cause more acquisitions to be handled as business combinations. b. Handling according to full fair value of transactions resulting in discontinuation of consolidation, so that the remaining holding after the discontinuation of the consolidation are revalued on the date of discontinuation of the consolidation at fair value to the statement of income. c. Handling according to full fair value of transactions resulting in consolidation of the financial statements (which were not consolidated prior to that), so that the original investment prior to the consolidation will be revalued on the date of the first consolidation at fair value to the statement of income . d. Minority rights will be measured at fair value or according to the proportional shares of identified assets and liabilities of the entity purchased, on the basis of every transaction separately. e. The handling of purchases of additional shares or sales of part of existing shares, without the Company discontinuing to consolidate the statements of the companies, in which transactions were made, will be done in such a way that all the differences resulting from the transactions will be recorded directly to shareholders' equity (including differences which in the past were recorded to the statement of income or to goodwill).

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 3 - Significant accounting principles (cont'd) B. New standards and interpretations which have not yet been adopted (cont'd) f. The immediate recording to the statement of income of transaction costs. g. The measurement of consideration is conditional on business combinations at fair value and the recording of changes in estimates relating to conditional consideration, which is a financial liability to the statement of income. h. Not updating goodwill due to the utilization of losses transferred for tax purposes, which existed on the date of acquiring businesses. i. The allocation of comprehensive profit between the shareholders, even if the subsidiary has a capital deficit. These Standards apply to annual financial periods of report starting July 1, 2009 or thereafter. The main changes in these Standards will apply from here on is regarding transactions from the date of first implementation. First implementation of the Standard is not expected to have any significant effect on the Group's results of operations and financial condition. B. New standards and interpretations which have not yet been adopted 1. In the framework of the project for improving international financial reporting standards from 2009 (Improvements to IFRS), the IASB published and approved in April 2009, 15 amendments to the IFRS in a wide range of accounting matters. The amendments will apply for periods starting January 1, 2010 and thereafter, with the possibility to adopt them earlier, subject to the detailed conditions of each amendment. The following are the details of the amendment which are likely to be relevant to the Group and which are likely to have an effect on the financial statements: • Amendment to IAS 17 - Leasing, Classification of Leasing Land and Buildings (hereinafter: "the Amendment") - According to the amendment, it will no longer be required to classify leasing of land as operative leasing in every case in which the ownership is not expected to be transferred to the lessee at the end of the lease period. According to the amended standard the demand is to examine the leasing of land according to the ordinary criteria for classifying leasing as financial or operative. Furthermore, it states that the components of land and buildings on the leasing of land and buildings will be examined separately for the purchase of classifying the leasing, based on the criteria of the amendment with the significant consideration in classifying the components of the land is the fact that the land generally has an indefinite life span. The amendment applies to financial statements of annual periods starting January 1, 2010 or thereafter. The amendment will be adopted retrospectively, i.e. the method of classification of the leasing of land must be examined on the basis of the information which existed at the time of the engagement in the leasing, and if there is a change in the classification of the leasing, the provisions of International Accounting Standard 17 must be adopted retrospectively from the date of the engagement in the leasing; but if the entity does not have the information required to adopt the amendment retrospectively, it must use the existing information on the date of the adoption of the Standard and recognize the asset and liability relating to the leasing of the land classified as a result of the amendment as financial leasing at fair value at that time. Any difference between the fair value of the asset and the fair value of the liability will be recorded to retained earnings. The implementation of the Standard is expected to have an effect on the reclassification of leasing of land from the Israel Lands Administration, which are not real estate for investment. The amendment is not expected to have any significant effect on the Group's results of operations and financial position.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 3 - Significant accounting principles (cont'd) B. New standards and interpretations which have not yet been adopted (cont'd) • Amendment to IAS 36 - Impairment in value of assets , the allocation of goodwill to cash-generating units (hereinafter: "the Amendment"). According to the amendment, in order to examine an impairment in value the cash-generating unit, to which goodwill is allocated, will not be larger than the operations segment, as defined in IFRS 8, before the adoption of the grouping criteria of clause 12 to IFRS 8. The amendment will apply to annual periods starting January 1, 2010 or thereafter. • Amendment to IAS 39 - Financial Instruments - Recognition and Measurement" , has been withdrawing from the application of contracts for business combinations (hereinafter: "the Amendment") - the amendment clarifies only forward contracts between the buyer and seller regarding the sale or acquisition of a controlled body, in the framework of a business combination on the date of forward purchase, IAS 29 does not apply, and this when the period of the forward contract does not exceed the normal period required to achieve approvals required for the transaction. The amendment will apply by way of 'from here on' for all the contracts that have not yet expired for annual periods starting January 1, 2010. • Amendment to IAS 38 – "Intangible assets: measurement of fair value of an intangible asset purchased in a business combination". The amendment details examples of techniques for evaluation used generally to measure the fair value of intangible assets purchased in the framework of a business combination in the absence of an active market. The amendment will apply to annual periods starting January 1, 2010 and thereafter. Earlier application is permitted while giving disclosure. • Amendment to IFRS 8 - Operating Segments: Disclosure regarding segment assets , the amendment stipulates that the information on the total assets of the segment requires only if information as mentioned in the organized reporting to the Chief Operating Decisions Maker (CODM). The amendment will apply to annual periods starting January 1, 2010 or thereafter. Earlier adoption is permitted while providing disclosure. • Amendment IAS 39, Financial Instruments: Recognition and Measurement, handling of a fine for early repayment of the loan as an embedded derivative. The amendment stipulates that if the additional exercise of an option (fine) for early repayment of a loan compensates the lender up to the amount equal to the present value of first payment of interest, which would have been received for the remaining period of the hosting contract (the loan) over market interest, then the economic characteristics and risks of early repayment for the option of the hosting debt contract are similar to the hosting contract and the embedded derivative should not be separated. The amendment will apply to annual periods starting January 1, 2010 or thereafter. Earlier adoption is permitted while providing disclosure. 2. IFRS 9 - financial instruments: In November 2009 the International Accounting Standards Board (IASB) published International Financial Reporting Standard IFRS 9 – Financial instruments (hereinafter – “the Standard”). This standard is a first stage in a project for the total replacement of International Accounting Standard IAS 39 – Financial Instruments: Recognition and Measurement (hereinafter – “IAS 39”) which replaces the requirements appearing in IAS 39 relating to the classification and measurement of financial instruments. According to the Standard there are two main categories when measuring financial assets: reduced cost and fair value, where the basis for measurement regarding debt instruments is based on the business model of the entity for managing financial assets and the characteristics of contractual cash flows of the financial asset. According to the Standard, investments in a debt instrument will be measured at reduced cost if the object of the entity’s model is to hold assets in order to collect their contractual cash flows while their contractual conditions create entitlement to cash flows on specific dates which comprise payments of principal and interest only. All the other financial assets will be measured at fair value. In addition embedded derivatives are no longer separated from complex contracts which include a hosting contract which is a financial asset. Instead, the whole complex contract will be examined in order to

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 3 - Significant accounting principles (cont'd) B. New standards and interpretations which have not yet been adopted (cont'd) classify according to the above criteria. In addition an investment in capital instruments will be measured at fair value and the changes in fair value will be recorded to the statement of income. Nevertheless, the Standard enables, at the time of initial recognition of a capital instrument, which is not held for trading, to choose to present changes in the fair value of the capital instrument (excluding dividends) in the framework of other comprehensive income with the amounts being recorded to other comprehensive income will never be classified to the statement of income. The Standard excludes financial liabilities. The Standard will be implemented for annual periods starting January 1, 2013 or thereafter. Earlier implementation is permitted subject to disclosure and subject to the concurrent adoption of the other amendments to the IFRS Standards detailed in the Appendix to the Standard. Implementation of the Standard will be done retrospectively, excluding certain exemptions, in accordance with the transitory provisions set forth in the Standard. In particular, should an entity choose to implement the Standard before January 1, 2012, it is not required to restate comparative figures. The Company is examining the expected effects of the Standard on its financial statements.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting The accounting principles of the segments are identical to those presented in Note 3 regarding accounting principles. The segment's performance is measured based on the segment’s profits before taxes on income. The results of inter-company transactions are cancelled in the framework of adjustments for the purpose of preparing consolidated financial statements. The Group operates in the following segments: 1. Life assurance and long-term savings segment This segment includes the group's insurance activities in the life assurance branch and group activities in the management of pension and provident funds. 2. Health insurance segment This segment includes the group's insurance activities in the sickness and hospitalization, personal accident and long-term care branches. Policies that are sold cover a range of injuries caused to the insured party as a result of illness and / or an accident, including long-term and dental care. Health insurance policies are offered to both private individuals and groups. 3. General insurance segment This segment includes four sub - fields: Motor property: includes the group's activities in selling insurance policies in the motor vehicle insurance branch ("motor vehicle property") covering damages caused to vehicle owners as a result of accident and / or theft and / or responsibility of the vehicle owner, or any driver, for damage to property caused to third parties in any accident. Compulsory motor vehicles: includes the group's activities in this branch, offered under provisions of Motor Vehicle Insurance Ordinance (New Version), 5730-1970, ("compulsory motor vehicles), which cover bodily damage as a result of any use of a motor vehicle in accordance with Compensation to Accident Victims Law, 5735-1975. Other liabilities sectors: includes the group's activities in respect of the sale of policies that cover the insured party's liability vis-à-vis a third party (except for liability coverage in the compulsory motor vehicles field, as explained above). This segment includes the following insurance branches - employer's liability, liability vis-à-vis third parties , professional liability, directors and officeholders liabilities, and insurance for damaged product liability. Property and other : this field includes the group's insurance activities in all property branches (except for motor vehicle property), that are detailed in insurance branch notices. 4. The financial services segment Group activities in the capital and financial markets are carried out through Harel Finance. Harel Finance is involved, through companies under its control, in the following activities: - Management of mutual funds - Management of security portfolios for private individuals, entities and institutional customers in the Israeli and foreign capital markets. - Providing trading services in securities (brokerage) in Israel and abroad in various fields, and mainly in the Ma'of, shares, futures contracts, and options markets. - The issue to the public of various CPI-linked products . - ETF's. 5. Not related to operating segments The activities which were not related to operating segments, include mainly operations of insurance agencies and the capital activity in consolidated insurance companies.

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Harel Insurance Investments & Financial Services Ltd.

Notes to the Interim Consolidated Financial Statements

Note 4 - Segment Reporting (Cont'd) A. Information regarding segment reporting

For the nine-months period ended September 30, 2009 (Unaudited) Life insurance Not allocated to and long-term Health General Financial any specific Adjustments saving insurance insurance services segment and offsets Total Thousand NIS Premiums earned, gross 2,020,957 1,356,036 1,991,208 - - - 5,368,201 Premiums earned by reinsurers 79,295 123,407 767,763 - - - 970,465 Retention premiums earned 1,941,662 1,232,629 1,223,445 - - - 4,397,736 Profit - investments, net, and financing income 3,642,428 284,417 247,426 7,265 91,010 (13,440) 4,259,106 Management fee income 304,477 5,537 - 87,645 3,217 - 400,876 Commission income 19,230 59,109 125,176 24,166 37,503 (21,150) 244,034 Other Income - - - - 4,066 (2,564) 1,502 Total income 5,907,797 1,581,692 1,596,047 119,076 135,796 (37,154) 9,303,254 Payments and changes in liabilities for insurance contracts and investment contracts, gross 5,111,242 1,171,766 2,042,735 - - - 8,325,743 Reinsurer's share of payments and changes in liabil ities for insurance contracts 55,258 57,311 941,687 - - - 1,054,256 Payments and changes in liabilities for insurance contracts and investment contracts, retention 5,055,984 1,114,455 1,101,048 - - - 7,271,487 Commission, marketing expenses and other acquisitio n costs 339,199 226,020 336,937 - 3,876 (21,150) 884,882 Management and general expenses 195,370 78,612 32,499 116,770 65,910 (2,564) 486,597 Other expenses 32,783 - - 512 2,898 - 36,193 Financing expenses (income), net 13,963 4,499 (5,393) 12,540 78,132 (13,440) 90,301 Total expenses 5,637,299 1,423,586 1,465,091 129,822 150,816 (37,154) 8,769,460 Company share of profit (loss) of investee companie s, recorded on the equity basis - - - (290) 13,084 - 12,794 Profit (loss) before income taxes 270,498 158,106 130,956 (11,036) (1,936) - 546,588 Liabilities for non-yield depended insurance and investment contracts 8,354,361 1,634,856 8,135,556 - - - 18,124,773 Liabilities for yield depended insurance and investment contracts 14,400,541 1,200,376 - - - - 15,600,917

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd) A. Information regarding segment reporting (cont'd) For the nine-months period ended September 30, 2008 (Unaudited)* Life insurance Not allocated to and long-term Health General Financial any specific Adjustments saving insurance insurance services segment and offsets Total Thousand NIS Premiums earned, gross 2,053,332 1,231,276 2,006,312 - - - 5,290,920 Premiums earned by reinsurers 83,446 84,666 674,461 - - - 842,573 Retention premiums earned 1,969,886 1,146,610 1,331,851 - - - 4,448,347 Profit - investments, net, and financing income (78 9,198) 48,299 117,507 8,013 24,218 (18,201) (609,362) Management fee income 263,937 4,901 - 113,725 2,038 - 384,601 Commission income 20,968 39,598 88,246 17,250 37,150 (18,219) 184,993 Other Income 282 - - - 35,507 (2,647) 33,142 Total income 1,465,875 1,239,408 1,537,604 138,988 98,913 (39,067) 4,441,721 Payments and changes in liabilities for insurance contracts and investment contracts, gross 999,881 886,138 1,675,336 - - - 3,561,355 Reinsurer's share of payments and changes in liabil ities for insurance contracts 53,488 36,504 569,863 - - - 659,855 Payments and changes in liabilities for insurance contracts and investment contracts, retention 946,39 3 849,634 1,105,473 - - - 2,901,500 Commission, marketing expenses and other acquisitio n costs 301,644 189,049 360,060 - 3,712 (18,219) 836,246 Management and general expenses 182,883 82,288 19,568 121,892 76,820 (2,647) 480,804 Other expenses 31,543 - - 89,802 135 - 121,480 Financing expenses (income), net 18,582 (258) (29,267) 14,271 82,994 (18,201) 68,121 Total expenses 1,481,045 1,120,713 1,455,834 225,965 163,661 (39,067) 4,408,151 Company share of profit (loss) of investee companie s, recorded on the equity basis - - - (346) 1,484 - 1,138 Profit (loss) before income taxes (15,170) 118,695 81,770 (87,323) (63,264) - 34,708 Liabilities for non-yield depended insurance and investment contracts 7,512,693 1,398,220 7,307,431 - - - 16,218,344 Liabilities for yield depended insurance and investment contracts 11,425,859 991,407 - - - - 12,417,266 * Regarding reclassification see Note 2(c).

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd)

A. Information regarding segment reporting (cont'd) For the Three-months period ended September 30, 200 9 (Unaudited) Life insurance Not allocated to and long-term Health General Financial any specific Adjustments saving insurance insurance services segment and offsets Total Thousand NIS Premiums earned, gross 746,004 470,495 695,639 - - - 1,912,138 Premiums earned by reinsurers 26,470 54,087 290,772 - - - 371,329 Retention premiums earned 719,534 416,408 404,867 - - - 1,540,809 Profit - investments, net, and financing income 1,128,058 95,305 93,433 1,835 31,987 (7,404) 1,343,214 Management fee income 110,825 1,560 - 33,319 1,701 - 147,405 Commission income 8,596 23,831 42,782 10,218 10,811 (10,683) 85,555 Other Income - - - - 1,269 (789) 480 Total income 1,967,013 537,104 541,082 45,372 45,768 (18,876) 3,117,463 Payments and changes in liabilities for insurance contracts and investment contracts, gross 1,752,548 398,473 785,843 - - - 2,936,864 Reinsurer's share of payments and changes in liabil ities for insurance contracts 17,663 28,427 385,185 - - - 431,275 Payments and changes in liabilities for insurance contracts and investment contracts, retention 1,734,885 370,046 400,658 - - - 2,505,589 Commission, marketing expenses and other acquisitio n costs 117,167 84,452 116,895 - 1,318 (10,683) 309,149 Management and general expenses 65,126 25,765 10,866 42,157 21,167 (789) 164,292 Other expenses 10,928 - - 164 49 - 11,141 Financing expenses (income), net 9,601 1,523 (9,354) 5,955 38,664 (7,404) 38,985 Total expenses 1,937,707 481,786 519,065 48,276 61,198 (18,876) 3,029,156 Company share of profit (loss) of investee companie s, recorded on the equity basis - - - (367) 5,071 - 4,704 Profit (loss) before income taxes 29,306 55,318 22,017 (3,271) (10,359) - 93,011 Liabilities for non-yield depended insurance and investment contracts 8,354,361 1,634,856 8,135,556 - - - 18,124,773 Liabilities for yield depended insurance and investment contracts 14,400,541 1,200,376 - - - - 15,600,917

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd) A. Information regarding segment reporting (cont'd)

For the three-months period ended September 30, 200 8 (Unaudited)* Life insurance Not allocated to and long-term Health General Financial any specific Adjustments saving insurance insurance services segment and offsets Total Thousand NIS Premiums earned, gross 646,755 440,468 710,267 - - - 1,797,490 Premiums earned by reinsurers 28,341 30,705 259,779 - - - 318,825 Retention premiums earned 618,414 409,763 450,488 - - - 1,478,665 Profit - investments, net, and financing income (73 3,004) (9,331) 61,953 4,440 (3,315) (5,030) (684,287) Management fee income 96,379 1,298 - 33,855 670 - 132,202 Commission income 15,987 15,845 29,243 5,931 12,931 (5,845) 74,092 Other Income 2 - - - 1,733 (1,148) 587 Total income (2,222) 417,575 541,684 44,226 12,019 (12,023) 1,001,259 Payments and changes in liabilities for insurance contracts and investment contracts, gross (112,336) 271,901 640,475 - - - 800,040 Reinsurer's share of payments and changes in liabil ities for insurance contracts 22,548 12,297 258,914 - - - 293,759 Payments and changes in liabilities for insurance contracts and investment contracts, retention (134,8 84) 259,604 381,561 - - - 506,281 Commission, marketing expenses and other acquisitio n costs 99,836 69,438 132,472 - 1,205 (5,845) 297,106 Management and general expenses 61,972 31,425 6,881 38,762 28,204 (1,148) 166,096 Other expenses 10,744 - - 82,200 45 - 92,989 Financing expenses (income), net 8,335 953 5,652 5,694 30,406 (5,030) 46,010 Total expenses 46,003 361,420 526,566 126,656 59,860 (12,023) 1,108,482 Company share of profit (loss) of investee companie s, recorded on the equity basis - - - 674 (1,370) - (696) Profit (loss) before income taxes (48,225) 56,155 15,118 (81,756) (49,211) - (107,919) Liabilities for non-yield depended insurance and investment contracts 7,512,693 1,398,220 7,307,431 - - - 16,218,344 Liabilities for yield depended insurance and investment contracts 11,425,859 991,407 - - - - 12,417,266 * Regarding reclassification see Note 2(c).

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd)

A. Information regarding segment reporting (cont'd) For the year ended December 31 2008 (Audited) Life insurance Not allocated to and long-term Health General Financial any specific Adjustments saving insurance insurance services segment and offsets Total Thousand NIS Premiums earned, gross 2,893,872 1,669,786 2,654,065 - - - 7,217,723 Premiums earned by reinsurers 107,499 116,366 878,099 - - - 1,101,964 Retention premiums earned 2,786,373 1,553,420 1,775,966 - - - 6,115,759 Profit - investments, net, and financing income (2, 023,868) (14,096) 134,597 7,361 (65,120) (24,997) (1,986,123) Management fee income 352,614 7,436 - 138,290 2,908 - 501,248 Commission income 21,092 56,700 123,343 23,295 49,475 (26,359) 247,546 Other Income 363 - - 16 38,020 (3,682) 34,717 Total income 1,136,574 1,603,460 2,033,906 168,962 25,283 (55,038) 4,913,147 Payments and changes in liabilities for insurance contracts and investment contracts, gross 742,063 1,113,841 2,190,694 - - - 4,046,598 Reinsurer's share of payments and changes in liabil ities for insurance contracts 75,362 44,547 748,324 - - - 868,233 Payments and changes in liabilities for insurance contracts and investment contracts, retention 666,70 1 1,069,294 1,442,370 - - - 3,178,365 Commission, marketing expenses and other acquisitio n costs 404,220 274,766 505,336 - 4,825 (26,359) 1,162,788 Management and general expenses 234,923 103,027 23,287 155,133 102,220 (3,682) 614,908 Other expenses 42,433 - - 146,082 7,239 - 195,754 Financing expenses (income), net 17,114 5,059 2,631 16,374 97,544 (24,997) 113,725 Total expenses 1,365,391 1,452,146 1,973,624 317,589 211,828 (55,038) 5,265,540 Company share of profit (loss) of investee companie s, recorded on the equity basis - - - (4,304) 824 - (3,480) Profit (loss) before income taxes (228,817) 151,314 60,282 (152,931) (185,721) - (355,873) Liabilities for non-yield depended insurance and investment contracts 7,755,602 1,426,039 7,194,227 - - - 16,375,868 Liabilities for yield depended insurance and investment contracts 10,654,884 967,990 - - - - 11,622,874 *reclassified

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd) B. Additional Information in respect of General Insurance Segment

For the nine-months period ended September 30, 2009 (Unaudited) Compulsor Property and Other liability motor Motor property other segments* segments** Total Thousand NIS Premiums earned, gross 483,877 713,846 505,916 515,255 2,218,894 Premiums earned by reinsurers 101,157 149,816 376,673 350,370 978,016

Retention premiums earned 382,720 564,030 129,243 164,885 1,240,878 Changes in premium balances that have not yet been earned, retention 3,337 15,995 (4,452) 2,553 17,433 Retention premiums earned 379,383 548,035 133,695 162,332 1,223,445

Profits from investments, net, and financing income 152,523 29,369 5,100 60,434 247,426 Commission income 9,571 20,241 58,336 37,028 125,176

Total income 541,477 597,645 197,131 259,794 1,596,047

Payments and changes in liabilities for insurance c ontracts, gross 461,227 500,395 327,009 754,104 2,042,735 Reinsurer's share of payments and changes in liabil ities for insurance contracts 41,053 58,208 268,801 573,625 941,687 Payments and changes in liabilities for insurance c ontracts, retention 420,174 442,187 58,208 180,479 1,101,048 Commission, marketing expenses and other acquisitio n costs 42,724 116,302 107,417 70,494 336,937 Management and general expenses 3,944 5,823 4,775 17,957 32,499 Financing expenses (706) (1,105) (2,047) (1,535) (5,393)

Total expenses 466,136 563,207 168,353 267,395 1,465,091

Profit before income taxes 75,341 34,438 28,778 (7,601) 130,956

Liabilities for insurance policies, gross, as at Se ptember 30, 2009 2,465,403 621,288 542,796 4,506,069 8,135,556

* Property and other segments primarily include res ults of property loss insurance and comprehensive h ousehold insurance, operations of which are 83% of total premiums earned from these segments. ** Other liability segments primarily include resul ts of third party insurance and professional liabil ity insurance, operations of which are 71% of total premiums earned from these segments.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd)

B. Additional Information in respect of General Insurance Segment (Cont'd) For the nine-months period ended September 30, 2008 (Unaudited)* Compulsor Property and Other liability motor Motor property other segments* segments** Total Thousand NIS Premiums earned, gross 468,918 678,561 447,263 639,327 2,234,069 Premiums earned by reinsurers 3,466 4,056 298,196 449,190 754,908

Retention premiums earned 465,452 674,505 149,067 190,137 1,479,161 Changes in premium balances that have not yet been earned, retention 43,564 57,427 4,120 42,199 147,310 Retention premiums earned 421,888 617,078 144,947 147,938 1,331,851

Profits from investments, net, and financing income 94,675 15,761 (7,392) 14,463 117,507 Commission income - 272 47,890 40,084 88,246

Total income 516,563 633,111 185,445 202,485 1,537,604

Payments and changes in liabilities for insurance c ontracts, gross 449,162 488,694 212,932 524,548 1,675,336 Reinsurer's share of payments and changes in liabil ities for insurance contracts 4,944 549 158,437 405,933 569,863 Payments and changes in liabilities for insurance c ontracts, retention 444,218 488,145 54,495 118,615 1,105,473 Commission, marketing expenses and other acquisitio n costs 43,096 123,756 115,252 77,956 360,060 Management and general expenses 5,175 5,724 4,644 4,025 19,568 Financing expenses (3,340) (5,230) (11,897) (8,800) (29,267)

Total expenses 489,149 612,395 162,494 191,796 1,455,834

Profit before income taxes 27,414 20,716 22,951 10,689 81,770

Liabilities for insurance policies, gross, as at Se ptember 30, 2008 2,244,115 559,142 415,489 4,088,685 7,307,431

* Property and other segments primarily include res ults of property loss insurance and comprehensive h ousehold insurance, operations of which are 82% of total premiums earned from these segments. ** Other liability segments primarily include resul ts of third party insurance and professional liabil ity insurance, operations of which are 81% of total premiums earned from these segments. *** Regarding reclassification see Note 2(c).

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd)

B. Additional Information in respect of General Insurance Segment

For the three-months period ended September 30, 200 9 (Unaudited) Compulsor Property and Other liability motor Motor property other segments* segments** Total Thousand NIS Premiums earned, gross 135,241 173,439 140,711 205,929 655,320 Premiums earned by reinsurers 28,596 36,165 101,931 149,946 316,638

Retention premiums earned 106,645 137,274 38,780 55,983 338,682 Changes in premium balances that have not yet been earned, retention (16,812) (41,886) (4,089) (3,398) (66,185) Retention premiums earned 123,457 179,160 42,869 59,381 404,867

Profits from investments, net, and financing income 63,417 11,027 (1,944) 20,933 93,433 Commission income 4,015 9,901 27,215 1,651 42,782

Total income 190,889 200,088 68,140 81,965 541,082

Payments and changes in liabilities for insurance c ontracts, gross 188,347 167,521 91,267 338,708 785,843 Reinsurer's share of payments and changes in liabil ities for insurance contracts 23,086 25,835 71,528 264,736 385,185 Payments and changes in liabilities for insurance c ontracts, retention 165,261 141,686 19,739 73,972 400,658 Commission, marketing expenses and other acquisitio n costs 16,199 45,933 42,179 12,584 116,895 Management and general expenses 1,045 2,085 1,488 6,248 10,866 Financing expenses (724) (1,134) (4,590) (2,906) (9,354)

Total expenses 181,781 188,570 58,816 89,898 519,065

Profit before income taxes 9,108 11,518 9,324 (7,933) 22,017

Liabilities for insurance policies, gross, as at Se ptember 30, 2009 2,465,403 621,288 542,796 4,506,069 8,135,556

* Property and other segments primarily include res ults of property loss insurance and comprehensive h ousehold insurance, operations of which are 79% of total premiums earned from these segments. ** Other liability segments primarily include resul ts of third party insurance and professional liabil ity insurance, operations of which are 62% of total premiums earned from these segments.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd) B. Additional Information in respect of General Insurance Segment For the three-months period ended September 30, 200 8 (Unaudited)* Compulsor Property and Other liability motor Motor property other segments* segments** Total Thousand NIS Premiums earned, gross 123,001 161,916 134,613 310,652 730,182 Premiums earned by reinsurers 1,348 1,495 87,116 246,536 336,495

Retention premiums earned 121,653 160,421 47,497 64,116 393,687 Changes in premium balances that have not yet been earned, retention (19,532) (46,947) (380) 10,058 (56,801) Retention premiums earned 141,185 207,368 47,877 54,058 450,488

Profits from investments, net, and financing income 34,842 2,512 4,489 20,110 61,953 Commission income - 134 20,435 8,674 29,243

Total income 176,027 210,014 72,801 82,842 541,684

Payments and changes in liabilities for insurance c ontracts, gross 167,103 156,581 66,181 250,610 640,475 Reinsurer's share of payments and changes in liabil ities for insurance contracts 982 159 46,526 211,247 258,914 Payments and changes in liabilities for insurance c ontracts, retention 166,121 156,422 19,655 39,363 381,561 Commission, marketing expenses and other acquisitio n costs 16,256 50,218 42,142 23,856 132,472 Management and general expenses 1,894 2,133 1,155 1,699 6,881 Financing expenses (3,127) (5,020) 2,908 10,891 5,652

Total expenses 181,144 203,753 65,860 75,809 526,566

Profit before income taxes (5,117) 6,261 6,941 7,033 15,118

Liabilities for insurance policies, gross, as at Se ptember 30, 2008 2,244,115 559,142 415,489 4,088,685 7,307,431

* Property and other segments primarily include res ults of property loss insurance and comprehensive h ousehold insurance, operations of which are 81% of total premiums earned from these segments. ** Other liability segments primarily include resul ts of third party insurance and professional liabil ity insurance, operations of which are 85% of total premiums earned from these segments. *** Regarding reclassification see Note 2(c).

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd)

B. Additional Information in respect of General Insurance Segment (Cont'd) For the Year ended December 31, 2008 (Audited) Compulsor Property and Other liability motor Motor property other segments* segments** Total Thousand NIS Premiums earned, gross 565,308 820,133 590,791 707,293 2,683,525 Premiums earned by reinsurers 4,972 5,264 393,713 485,284 889,233

Retention premiums earned 560,336 814,869 197,078 222,009 1,794,292 Changes in premium balances that have not yet been earned, retention 1,406 (9,082) 3,810 22,192 18,326 Retention premiums earned 558,930 823,951 193,268 199,817 1,775,966

Profits from investments, net, and financing income 89,408 18,264 6,379 20,546 134,597 Commission income - 474 64,895 57,974 123,343

Total income 648,338 842,689 264,542 278,337 2,033,906

Payments and changes in liabilities for insurance c ontracts, gross 571,562 635,908 278,699 704,525 2,190,694 Reinsurer's share of payments and changes in liabil ities for insurance contracts 1,890 644 205,066 540,724 748,324 Payments and changes in liabilities for insurance c ontracts, retention 569,672 635,264 73,633 163,801 1,442,370 Commission, marketing expenses and other acquisitio n costs 61,288 175,567 156,326 112,155 505,336 Management and general expenses 5,752 6,076 5,741 5,718 23,287 Financing expenses 976 199 1,432 24 2,631

Total expenses 637,688 817,106 237,132 281,698 1,973,624

Profit before income taxes 10,650 25,583 27,410 (3,361) 60,282

Liabilities for insurance policies, gross, as at De cember 31, 2008 2,226,947 490,245 398,361 4,078,674 7,194,227

* Property and other segments primarily include res ults of property loss insurance and comprehensive h ousehold insurance, operations of which are 84% of total premiums earned from these segments. ** Other liability segments primarily include resul ts of third party insurance and professional liabil ity insurance, operations of which are 83% of total premiums earned from these segments.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 4 - Segment Reporting (Cont'd)

C. Additional Information in respect of Life assurance and Long Term Savings Segment

For the nine-months period ended September 30, 2009 (Unaudited) For the nine-months period ended Septem ber 30, 2008 (Unaudited)* Provident Pension Life-assurance Total Provident Pension Life-assurance Total Thousand NIS Premiums earned, gross - - 2,020,957 2,020,957 - - 2,053,332 2,053,332 Premiums earned by reinsures - - 79,295 79,295 - - 83,446 83,446 Retention premiums earned - - 1,941,662 1,941,662 - - 1,969,886 1,969,886 Profits from investments, net, and financing income 376 2,653 3,639,399 3,642,428 502 1,363 (791,063) (789,198) Management fee income 159,704 81,716 63,057 304,477 138,541 68,903 56,493 263,937 Commission income - - 19,230 19,230 - - 20,968 20,968 Other income - - - - - 282 - 282 Total income 160,080 84,369 5,663,348 5,907,797 139,043 70,548 1,256,284 1,465,875

Payments and changes in liabilities for insurance contracts and investment contracts, gross 1,092 4,103 5,106,047 5,111,242 888 2,884 996,109 999,881 Reinsurer's share of payments and changes in liabilities for insurance contracts - - 55,258 55,258 - - 53,488 53,488 Payments and changes in liabilities for insurance contracts and investment contracts, retention 1,092 4,103 5,050,789 5,055,984 888 2,884 942,621 946,393 Commission, marketing expenses and other acquisition costs 26,586 46,427 266,186 339,199 20,135 35,779 245,730 301,644 Management and general expenses 55,367 18,002 122,001 195,370 41,893 21,749 119,241 182,883 Other expenses 13,981 2,861 15,941 32,783 12,729 2,873 15,941 31,543 Financing expenses (income), net 281 1,823 11,859 13,963 858 (11) 17,735 18,582 Total expenses 97,307 73,216 5,466,776 5,637,299 76,503 63,274 1,341,268 1,481,045 Profit (loss) before income taxes 62,773 11,153 196,572 270,498 62,540 7,274 (84,984) (15,170)

* Regarding reclassification see Note 2(c).

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Notes to the Interim Consolidated Financial Statements

Note 4 - Segment Reporting (Cont'd) C. Additional Information in respect of Life assurance and Long Term Savings Segment Forthethree-monthsperiodendedSeptember Forthethree-monthsperiodendedSeptember 30,2009(Unaudited) 30,2008(Unaudited)* FortheYearendedDecember31 ,2008(Audited) Life- Life- Life- Provident Pension assurance Total Provident Pension assurance Total Provident Pension assurance Total ThousandNIS Premiums earned, gross - - 746,004 746,004 - - 646,755 646,755 - - 2,893,872 2,893,872 Premiums earned by reinsures - - 26,470 26,470 - - 28,341 28,341 - - 107,499 107,499 Retention premiums earned - - 719,534 719,534 - - 618,414 618,414 - - 2,786,373 2,786,373 Profits from investments, net, and financing income 134 702 1,127,222 1,128,058 221 34 (733,259) (733,004) 675 1,096 (2,025,639) (2,023,868) Management fee income 57,110 30,668 23,047 110,825 52,244 25,052 19,083 96,379 181,411 97,582 73,621 352,614 Commission income - - 8,596 8,596 - - 15,987 15,987 - - 21,092 21,092 Other income - - - - - 2 - 2 - 363 - 363 Total income 57,244 31,370 1,878,399 1,967,013 52,465 25,088 (79,775) (2,222) 182,086 99,041 855,447 1,136,574 Payments and changes in liabilities for insurance contracts and investment contracts, gross 339 1,664 1,750,545 1,752,548 304 1,171 (113,811) (112,336) 1,318 3,870 736,875 742,063 Reinsurer's share of payments and changes in liabilities for insurance contracts - - 17,663 17,663 - - 22,548 22,548 - - 75,362 75,362 Payments and changes in liabilities for insurance contracts and investment contracts, retention 339 1,664 1,732,882 1,734,885 304 1,171 (136,359) (134,884) 1,318 3,870 661,513 666,701 Commission, marketing expenses and other acquisition costs 9,615 18,185 89,367 117,167 6,983 13,788 79,065 99,836 29,218 49,950 325,052 404,220 Management and general expenses 19,474 4,237 41,415 65,126 14,854 8,522 38,596 61,972 64,273 27,082 143,568 234,923 Other expenses 4,661 954 5,313 10,928 4,473 958 5,313 10,744 17,346 3,832 21,255 42,433 Financing expenses (income), net 95 893 8,613 9,601 558 4 7,773 8,335 99 1 17,014 17,114 Total expenses 34,184 25,933 1,877,590 1,937,707 27,172 24,443 (5,612) 46,003 112,254 84,735 1,168,402 1,365,391 Profit (loss) before income taxes 23,060 5,437 809 29,306 25,293 645 (74,163) (48,225) 69,832 14,306 (312,955) (228,817)

* Regarding reclassification see Note 2(c).

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WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd.

Notes to the Interim Consolidated Financial Statements

Note 5 - Taxes on income A. Tax Assessment in dispute 1. On April 2009, a consolidated company which manages pension funds, received tax assessments for the years 2005 to 2007 which include an addition of income for acquisition expenses relating to the sale of new pensions, and recognized as current expense on the day they were taking out and this instead of spreading them over a number of years. According to the assessments, the consolidated company will be required to advance tax of NIS 18.8 million. The consolidated company filed an objection to this decision, it being arbitrary and without an accounting basis. Since the effect is regarding the tax payment date and not the tax amount, the result of the dispute will not have a material effect over the consolidated company's capital or profit. 2. In September 2009, a subsidiary received a tax assessment for the 2007 tax year, which includes additional revenues of about NIS 11 million for implementing the results of the Bar Zakai Committee in connection with the method of relating costs for the acquisition of the provident funds of the Leumi Group, and the nature of their deduction for tax purposes (for details of the results of the Bar Zakai Committee, see clause C. below). The Company filed an objection to the assessment arguing that it does not reflect the nature of the transaction and the real economic value of the subject purchased. B. On January 12, 2009, a tax arrangement was received from the Tax Authorities which applies to the consolidated company to those who hold ETFs Series A to F which have been issued (see note 8(b) below). Following is the main points of the tax arrangement: 1. The ETFs will be classified as "forward transactions" as this term is defined in Section 88 of the Tax Authority Ordinance. 2. The conversion of ETFs in the basket shares themselves was not a tax event by the converter, and the provisions set forth in the Income Tax Regulations (Calculation of Capital Gains in a Forward Transaction) - 2002 will apply. Therefore, the conversion is not liable to withholding tax. 3. The amount distributed to the holders of ETFs as interest, will be classified as interest for all intents and purposes by the holders of the ETFs. Regarding this matter the rate of withholding tax by the Company from the amount distributed will be according to the provisions of the Income Tax Regulations (Deductions from Interest, from Dividends and Certain Margins) - 2005, whichever relevant. The distribution of payment by the certificates resulting from interest will be classified for tax purposes as interest derived from securities fully linked to the index. 4. The subsidiary will registered as a financial institution for the purposes of the Value Added Tax Law. 5. Revenues from a dividend by a consolidated company will be taxed as special income and the amount of tax which will apply to this income will be calculated according to the tax rate applying to revenues from dividends or interest by an individual, which is grossed up. This amount will be deductible as an expense for the purchase of shares with a view to adjust the composition of the Company's assets to their proportional weight in the basket. 6. All the expenses connected with the issue of the ETFs, including lawyers’ and accountants’ fees will be required subject to the provision of any law, but only in the consolidated company. Therefore, the expenses from the issue will be amortized over the life of the ETFs, according to generally accepted accounting principles. 7. The share of these expenses which were paid against the level of the series, which has not yet been issued to the public (dormant ETFs on the date of the issue) will be deductible only on the date of their sale to external entities, and will be amortized over the life of the certificates according to generally accepted accounting principles. The aforesaid is not an opinion as to whether these expenses, partly or fully, are deductible or not, and this in accordance with the Ordinance.

33 -2 -2 33

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 5 - Taxes on income (cont'd) C. On August 2, 2009, the Tax Authority published a report prepared by the committee to review the tax implications of implementing the recommendations of the Bachar Committee. The purpose of the committee recommendations and pursuant the Legislation to Increase Competition and Reduce Concentrations and Conflicts of Interest in the Israeli Capital Market (Amendment to the Legislation) - 2005, and to establish a uniform taxation outline for these transactions and for transactions that may be performed in the future. The Company is reviewing the committees' recommendations and its' influence over future tax payments. In the opinion of the Company's management, the expected effect over the financial statements, assuming the committees' recommendations will be fully excepted, is not significant. D. A series of agreements were signed in the past between the Association of Life Assurance Companies and the Ta Assessing Officer, where the last one relates to the 2007 tax year. The parties are negotiating in connection with extending the agreement to the 2008 tax year, including the subject of handling IFRS Standards, differences relating to changes in shareholders' equity, as a result to the transition to the adoption of the Standards, on the transition date and the method of spreading the tax for: marketable securities, completing the reserves for savings in life assurance, indirect expenses to settle general insurance claims and amending the calculation of the surplus reserves of revenues over expenses in general insurance, according to a fixed yield of 3%, and the method of recognizing profits from securities on a current basis. At this stage no agreement for the 2008 tax year has yet been signed. E. Change in the tax rates applying to the Company's income: 1. In June 2009, the Knesset approved the Value Added Tax Order (Tax Rate on Non-Profit Organizations and Financial Institutions) (Temporary Order) - 2009 (hereinafter: "the Amendment"). The amendment stipulates an increase in the rate of profit tax imposed on financial institutions from 15.5% to 16.5%, as from July 1, 2009 until December 31, 2010. The amendment will actually be completed during the reporting period and, therefore, current taxes and deferred taxes as at September 30, 2009 were calculated according to the amended tax rate. 2. In July 2009, the Knesset passed the Economy Efficiency Law (Legislative Amendments to Implement the Economic Program for 2009 and 2010) - 2009, which stipulates, inter alia, an additional gradual reduction in the rate of companies tax up to 18% in the 2016 tax year and thereafter. According to these amendments, the companies tax rates applying in the 2009 tax rate and thereafter will be as follows:

Financial institutions' comprehensive Company's tax rate Profits' tax rate tax rate year %

2009 26 16.0 (*) 36.21 (*) 2010 25 16.5 35.62 2011 24 15.5 34.20 2012 23 15.5 33.33 2013 22 15.5 32.47 2014 21 15.5 31.60 2015 20 15.5 30.74 2016 thereafter 18 29.00 15.5 (*) Weighted tax rate. The effect of this change on the balances of deferred taxes resulted in an increase in net income of NIS 21.5 million, which was recorded to the taxes on income item for the periods of nine months and three months, ended September 30, 2009. This change will not significantly affect the balance of deferred taxes recorded directly to shareholders' equity. The change in the profit tax rate did not have a significant effect on current taxes.

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34 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments A. Class Actions and requests to approve petitions as a class action There is general exposure, which cannot be estimated and / or quantified, that stems, inter alia, from the complexity of services provided by the group to its insured parties. The complexity of these arrangements hide, inter alia, potentials for claims, interpretations, etc., because of the differences in information available between the group and other parties vis-à-vis insurance policies, relating to a long list of commercial and regulatory conditions. One cannot anticipate the type of claims that can be raised in this field and the exposure relating to these claims and others vis-à-vis an insurance policy, raised inter alia, during any formal deliberations vis-à-vis class action issues. In addition, there is a general exposure resulting from the fact that, from time to time, complaints are filed with the Commissioner of Capital Market Insurance & Savings in the Ministry of Finance against institutional entities in the Group, regarding the rights of the insured according to the insurance policies and/or the law. These complaints are handled on a current basis by the Division for Public Complaints in Institutional Bodies. The decisions of the Supervision regarding these complaints, if and to the extent that a decision is made, are liable to also apply to groups and sometimes to large groups of insureds. Sometimes, the complaining factors also threaten that they will take steps regarding their complaint in a class action framework. At this time, it is not possible to estimate if there is exposure for these complaints and it is not possible to evaluate whether wide ranging decision by the Commissioner will be issued regarding these complaints and/or if class actions will be filed as a result of such proceedings, and it is not possible to evaluate the potential exposure due to these proceedings. Therefore, no provision for this exposure was included. Following are details of exposures for class-action suits and requests to recognize said as class-action suits submitted against the company and / or group companies. Requests to approve class-action suits specified in 1-23 and 25 below, when, in the opinion of management, based, inter alia, on legal opinions received, it is more likely than not, that the defense claims of the company will be accepted, and the request to approve the class-action suit will be rejected - no provisions have been made in the financial statements. Requests to approve class-action suits, when , vis-à-vis the claim, in whole or in part, it is more likely that not that the defense claims of the company may be rejected - provisions have been included in the financial statements to cover the exposure estimated by the company management and / or consolidated companies managements. In the opinion of company management, based, inter alia, on legal opinions received, the financial statements include provisions in sufficient amounts (if any provisions were indeed required), to cover the exposure estimated by the company and / or consolidated companies. The amount of the provision included in the financial statement to cover exposure is immaterial. Regarding the requests to recognize class-action suits, specified in 24 and 26 below, it is not possible at this early stage to evaluate the chances of the request for approval as class-action suits, and thus the financial statements do not include any provisions. 1. During April 2003, a petition against the Harel Insurance (consolidated company) and against additional 3 insurance companies was filed in Tel Aviv-Yafo District Court, to which was attached a request to approve the petition as a class action. The matter of the petition and the request for approval as a class action, is the claim that Harel Insurance collected from its insured parties, for years, Stamp Tax, paid on insurance contracts on the basis of Stamp Tax Law on Contracts, 5721 - 1961, illegally. The plaintiff claims, inter alia, that Harel Insurance made illegal gain on his account, and has to return the sums collected. The total sum of the suit quoted by the plaintiff in his complaint is NIS 166 million. The hearing on the request for approval as a class action was consolidated with hearings regarding other pending open files against other defendants, for approval as class actions in cases that are similar to the petition against Harel Insurance, that were submitted against other defendants in civil cases are handed down.

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35 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd) A. Class Actions and requests to approve petitions as a class action (cont'd) On June 7, 2009, a decision was issued in the framework of which a class action was approved and the relief approved was the repayment of half of the amount of stamp tax that the insureds pay. Harel Insurance and three additional defendant insurance companies submitted to the Supreme Court an application to appeal the above decision. On September 30, 2009, the supreme Court ruled for the above decision. On September 30, 2009, the Supreme Court decided that the application to appeal requires a response and instructed the plaintiffs to respond to the objection. 2. During April 2006, a petition was filed against Harel Insurance (consolidated company) in Tel Aviv-Yafo District Court, along with a request for approval of the petition as a class action. The petition was filed against five insurance companies, including Harel Insurance, by five plaintiffs who were insured by different companies against loss of ability to work. According to the plaintiffs, they paid insurance premiums for loss of ability to work policies up to the end of the insurance period, including premiums for the last three months of the insurance period according to the policy. The plaintiffs claim that the defendants collected insurance premiums during the last three months of the insurance period, regardless that for this period, the plaintiffs were not eligible to receive insurance compensation even if they suffered loss of ability to work (because of a waiting period determined in the policy). The plaintiffs claim that the defendants did not provide them with the information that it was their intention to collect insurance premiums for the last three months of the insurance period according to the policy. The relief claimed is to issue a court order obliging all defendants to cease collecting insurance premiums for the period noted, and require all defendants to return all insurance premiums collected from the members of the group that the plaintiffs ask to represent in the framework of a class action, for the last three months of the insurance period, together with the linkage differences and interest, as stated in Section 28 (c) of Insurance Contract Law, starting from the day of payment collection, as noted, and up to the date of the actual refund. According to the plaintiffs, the damage caused to all plaintiffs by the defendants is estimated, in accordance with an expert opinion, at NIS 47.61 million. The damage claimed by the plaintiffs from Harel Insurance, totals, as estimated NIS 1.54 million. On February 3, 2009, the court approved the petition as a class action. Harel Insurance submitted a request for the right to appeal the decision on the approval of the class action suit. 3. During May 2006, a petition was filed in Tel Aviv-Yafo District Court applying for a class action suit against Harel Insurance (consolidated company). The matter of the petition is for insurance remuneration for reduced value vehicles. The claim is that Harel Insurance did not comply with the procedure in Insurance Circular 12/00, which mandates full disclosure of the manner of how any reduction in reduced value vehicles is calculated and therefore the company was obligated to calculate the insurance remuneration without the reduction. The amount claimed against the group is NIS 77 million - the difference between remuneration payments without reduction and payments where reduction was made (with reduction according to the Yitzhak Levy Price List) to all the group members over the past seven years. It should be noted that the petition was submitted after the Government's Attorney General appeared in court and expressed a position on the process that the plaintiffs are making on a similar matter against another insurance company, although the matter of Harel Insurance differs from the matter of the other insurance company, since Harel Insurance acts to provide full disclosure in the matter of the way the reduction is made, whether in the policy, on the insurance details sheet or on its standard price quote form. It should also be noted that the plaintiffs renewed their policies and did not issue a new policy, and that they had already received reduced insurance remuneration in the past, so their awareness of the deductions is in no doubt whatsoever. On June 26, 2007, the parties submitted a settlement agreement for the court’s approval, according to which Harel Insurance has reinstated procedures and made certain changes in the forms it uses. The settlement agreement does not place any financial obligation on Harel Insurance other than bearing the professional fees paid by the plaintiff and payment of an insignificant amount of special remuneration to the plaintiff.

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36 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd)

A. Class Actions and requests to approve petitions as a class action (cont'd)

On November 8, 2007, the court rejected the petition of the parties to approve the settlement agreement. Afterwards, the parties submitted an amended compromise agreement. Under the amended compromise agreement, Harel Insurance agreed to grant a "free 13th month" to any party who was insured through it, if he incurred any total loss (including any "almost" total loss or theft) and if the insurance indemnity calculation included any deductions for "various factors." On July 15, 2008, court deliberations took place, and the amended compromise agreement was submitted for court approval. The court ordered the parties to submit a request for approval of the compromise agreement within 30 days and after its approval, publish it in accordance with Section 25 of Class-Action Law, 5766- 2006. Said notice was published on August 5, 2008. Furthermore, the court ruled that copies of the wording of the agreement should be sent to the Attorney General, the Commissioner, and the Director of Courts. The court appointed Mr. Yitzhak Shahak to review the value of the proposed benefit that was awarded as part of the compromise agreement. The Attorney General objected to the compromise agreement, and Harel Insurance informed the court of changes to the agreement under which it gave the option to receive a free month of insurance without purchasing an insurance policy for 12 months and additional benefits (and not in lieu of the other benefits). The court did not approve the compromise agreement. The hearings in this file has been set for December 2009. 4. During January 2007, a petition for approval of a class action against Harel Insurance (consolidated company) in Tel Aviv-Yafo District Court was filed by the Teachers' Histadrut in Israel and Ashmoret - Welfare & Cultural Services Ltd. The subject of the petition is the long-term care insurance premiums that Harel Insurance collects from its insured parties and the arrangements regarding the collective long-term care insurance between Harel Insurance and other respondents. The petitioner has two separate claims for two different groups: first, that Harel Insurance raised the insurance premium and renewed the insurance contract during the policy's term, which is contrary to what was stated in the policy and without the policyholders' consent. Secondly, that Ashmoret - Welfare & Cultural Services, Ltd. illegally collected 4% of the insurance premiums that the policyholders paid under the group long-term care insurance. The petitioner estimates that the damage totals NIS 38 million for Harel Insurance and NIS 9 million for the other group. When reviewing the facts, it became apparent that the petitioner was in fact not charged 4% of the fees as said and that it was not an increase of the insurance premiums for long-term care insurance, but rather replacement of the insurance agreement due to a tender conducted by the Teachers' Association. Harel Insurance submitted its reply to the request of permission of representation. The petitioner's response to Harel Insurance's response has not yet submitted. During June 2008, an amended request for approval as a class-action suit, and a request to amend the claim document to include the claim that was made to insured parties that the issue at hand concerned long-term care insurance, against the payment of fixed insurance premiums. The court approved the petitioner to amend his statement of claim and to include a misrepresentation cause. The petitioner submitted an amended request as mentioned, and Harel Insurance submitted it's respond to that request. 5. During February 2007, a petition against the Dikla Insurance Company (consolidated company) and Clalit Health Services ("Clalit") was filed in Tel Aviv-Yafo District Court, along with a request to approve the petition as a class action (respectively: "the petition and request for approval"). A summary of the plaintiff’s claim is that from 2001, monthly payments were collected from him in respect of a supplementary insurance policy ("Clalit Mashlim") as well as for additional health services ("Clalit Mushlam"). According to the plaintiff, these are overlapping insurance policies, involving duplication of insurance and where their combination provided no benefit. On the basis of that said above, the plaintiff claims, inter alia, a breach of the contract commitment between him and Clalit with his inclusion in Clalit Mushlam, a breach of legislated obligation; deception and breach of disclosure according to the Consumer Protection Law and Insurance Business (Control) Regulation (Financial Services: Insurance), 5741-1981 and unjust enrichment on behalf of Dikla and Clalit. The plaintiff asked to represent any and everyone who purchased the Mashlim insurance policy from Dikla, while they were insured by the Clalit Health -2

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd)

A. Class Actions and requests to approve petitions as a class action (cont'd) Maintenance Organization at the same time, with "Mushlam" supplementary medical insurance for any insurance period whatsoever. In the plaintiff’s opinion, the group numbers at least 50,000 insured parties, and he estimates that the average damage caused to each of them is NIS 1,500 (the plaintiff claims that his damage is NIS 2,714). Therefore, the plaintiff’s estimate of the value of the entire petition totals NIS 75 million. On August 7, 2008, Dikla and Clalit submitted their response to the request for approval. During July 2008, the plaintiff submitted his rejoinder to the response regarding the request to approve the petition as a class action. During a preliminary hearing on the request for approval, held during November 2008, the court ordered the commissioner to submit his position regarding the petition. This position was recently accepted, and as a response, Dikla submitted deposition supporting of uts' position. A hearing regarding the request to approve the petition as a class action was held on September 2009, and the parties must submit their summarizations. 6. During April 2007, a petition and a request for approval as a class action were filed against Harel Insurance (consolidated company) in Tel Aviv-Yafo District Court. The petition was filed against Bank Hapoalim B.M., Bank Leumi le-Israel B.M., Israel Discount Bank Ltd., First International Bank of Israel Ltd. ("The Banks"), Clal Finance, Batucha Investment Management Ltd., Migdal Stock Exchange Services (N.E.) Ltd., and Harel Investment House (these last three will henceforth be called: "Fund Managers"). The premise for the claim was a reimbursement of brokerage commissions allegedly paid by the plaintiffs from the beginning of 2004, in respect of their holdings of units of various mutual trust funds, as specified in the statement of claim, for the charges of brokerage commissions and commissions associated with trading in foreign currency at a rate higher than the rate purportedly supposed to be charged from the claimants. According to the petitioner, from 2004, the respondents charged a number of private bodies, commissions at lower rates than those charged in relation to mutual trust funds that the banks controlled. According to the statement of claim, the period relevant to Harel Investment House is from November 15, 2006 up to the end of March 2007. It is also claimed, that as part of the framework of the banks sale of control of the mutual trust funds to mutual trust fund managers, it was allegedly determined that the banks would continue to provide the fund managers with share trading services on the Tel-Aviv Stock Exchange and / or banking services (buying/selling foreign currency), and charge the same high commission charged up to the time of sale, where this is expressed, allegedly, in the reduced price that was paid for purchasing control of the mutual trust funds, to prevent the mutual trust fund managers from profiting by the collection of brokerage commissions. The petition was submitted under Class Action Law, 5766-2006. The plaintiff’s claims are, inter alia, the alleged breach of Section 69 of Joint Investment in Trust Funds Law, alleged breach of the trust obligation of mutual trust fund managers toward mutual unit holders, alleged breach of Banking Law (Customer Services), 5741-1981, and alleged breach of the Commissioner of Banks' - Banking Procedures, Standard 7(1/01), "Activity of the Banking System in the Capital Market", alleged deception of mutual fund unit holders, alleged enrichment and alleged unjust enrichment. The overall amount of the claim by all plaintiffs, including those plaintiffs asking for representation in the framework of a class action, against all respondents is initially estimated by the plaintiffs at NIS 386 million. The group that all plaintiffs are asking to represent is anyone who purchased, holds and / or held during the periods relevant to this claim, mutual trust fund units managed by the trust fund managers who were and / or are in control of the respondents or any one of them. The total amount claimed by all the plaintiffs, including those the plaintiffs are asking to represent in the framework of a class action, against Harel Investment House is estimated by the plaintiffs at NIS 5,676 thousand.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd) A. Class Actions and requests to approve petitions as a class action (cont'd) The remedy claimed in the complaint is to require the respondents to return the commissions allegedly over collected, from group members from the beginning of 2004. In addition, the plaintiffs have requested a court order directing the respondents to change the manner of how they conduct themselves in all matters related to the collection of commissions. 7. During May 2007, a claim was filed against the company and Harel Insurance (consolidated company), together with a request to approve it as a class action, in District Court of Tel-Aviv. Two policyholders, one a holder of a disability policy and the other a life assurance policy, submitted the claim. According to the claimants, they were allegedly charged insurance premiums from the month of joining the insurance, instead of the date of effect of the policy. They claimed that charging the insurance premiums for the period from the beginning of the month in which they purchased the policy until the date of effect of the policy was allegedly done illegally. The claimants asked to represent all parties who purchased a life assurance policy from Harel Insurance and were charged insurance premiums for the period from the beginning of the month of purchasing the policy and not the date of effect of the policy. The claimants estimate their personal damage at NIS 500 and the damage to all members of the group that they wish to represent at NIS 23 million. On October 14, 2007, Harel Insurance submitted its response, indicating that both cases presented by the claimants, stating that the premium was charged for days not covered by the insurance, are extremely irregular cases, which contradict Harel Insurance's procedures and thus they cannot represent any group. In addition, the response included an obligation by Harel Insurance to reimburse policyholders with similar circumstances that will address Harel Insurance, for the relevant share of the premium collected from them, but the scope of risk resulting from this is insignificant. The parties have submitted a request to approve a compromise agreement. The Court appointed an Examiner to examine the compromise. The Examiner submitted his opinion to the Court and a hearing to the application to approve the compromise was set for December 2009. 8. During May 2007, a claim was filed against Harel Insurance (consolidated company), Dikla and another insurance company, which are the insurers of a complementary insurance for pensioners, together with a request to approve it as a class action, in District Court of Tel-Aviv. The claim was submitted by a policyholder covered by "Mashlim LaGimlay," which is a group long-term care policy. According to the claimant, he was charged insurance premiums even after occurrence of an insurance event, that is, after he required long-term care and began receiving insurance compensation according to the policy. The claimant claimed that charging the insurance premiums as said, was allegedly done illegally, since there is no provision in the policy, requiring continuation of charging premiums after occurrence of any insurance event and also, supposedly contradicts provisions published by the Commissioner of Insurance regarding the release from paying insurance premiums for long-term care insurance, once the policyholders is in need of long-term care. The claimant asked to represent all policyholders of "Mashlim LaGimlay" and/or other long-term care policies with similar conditions. The personal claim amount is NIS 8,202. The claimant estimates that the claim for all claimants in the group that he wishes to represent is NIS 166 million. On June 29, 2009, a decision to approve the claim as a class action was giving. Harel Insurance and Dikla submitted a request to appeal this decision. 9. During January 2008, a claim was submitted to District Court of Tel Aviv against Harel Insurance (consolidated company) and four other insurance companies, together with a request to approve the claim as a class action. The premise for the claim is a demand to return payments referred to as "payment of sub-annual factor" (payments that insurance companies are entitled to collect when the insurance tariff is determined in an annual amount, but the actual payment is done in a number of payments) as well as a mandatory injunction instructing the respondents to amend their manner of conduct. According to the claimants, the respondents collected "payment of sub-annual factor" unjustly as follows: (a) collection of payment in proportion to the component of the policy, collected and calculated on a monthly basis, which according to the claimants forms "management fees"; (b) collection of a rate exceeding the maximum rates permitted according to provisions of the Commissioner of Insurance ; (c) collection in reference to the savings component, allegedly done contrary to the provisions of the Commissioner in this matter; (d) collection for a policy which is not a life assurance

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd)

A. Class Actions and requests to approve petitions as a class action (cont'd) policy, although according to that claimed, insurance companies are only entitled to charge such a payment for life assurance. The claimants asked to represent anyone who was part of an insurance policy with the respondents and paid "payment of sub-annual factor" under circumstances or amounts exceeding permitted amounts. According to the claimants, the damage caused (to seven claimants) amounts to NIS 1,683.54 for every year of insurance. The claimants estimate that the amount of claim for all members of the group that they wish to represent against all respondents (5 insurance companies) is NIS 2.3 billion, of which NIS 307 million is against Harel Insurance. Harel has not yet submitted its response to the request. 10. During January 2008, a claim was submitted to District Court of Tel Aviv against Harel Insurance (consolidated company) and four other insurance companies, together with a request to approve the claim as a class action. The grounds for the claim are that the respondents allegedly collected management fees from policyholders in life assurance policies of the "profit-participating" type, contrary to the Supervision on Insurance Business (Terms in Insurance Policies) Regulations, 5742-1981 and provision issued by the Commissioner. According to the claimants, the respondents charged management fees at a monthly rate that is higher than the permitted amount, and charged variable management fees every month, although such are charged at the end of the year. The claim is for return of the said amounts, allegedly collected in excess, and a mandatory injunction instructing the respondents to amend their conduct in matters of the claim. The claimants asked to represent anyone who was or is insured in a life assurance policy that includes "profit participation" savings, issued by one or more of the respondents between 1992 and 2002 (inclusive). The claimants believe that the nominal amount of claim against all respondents (5 insurance companies) for all members of the group that they wish to represent is NIS 244 million, of which NIS 28 million is against Harel Insurance. Harel has not yet submitted its response to the request. 11. During February 2008, a claim was submitted to District Court of Tel Aviv against Harel Insurance (consolidated company) and three other insurance companies ("Respondents"), together with a request to approve the claim as a class action. The claimants claimed that the Respondents allegedly do not pay the component of VAT to certain policyholders or the damaged third party (in third party claims) for his expenses, as part of insurance compensations from vehicle property and third party insurance to policyholders or damaged entities that are "dealers" under Value Added Tax Law, that is, the component of VAT for the cost of repairs, impairment of value of the vehicle and the cost of payment for an assessor's opinion. The claimants estimate that the amount of claim against all Respondents, on behalf of the entire group that they wish to represent is NIS 100 million. The amount of personal claim against Harel Insurance is NIS 1,288, plus linkage differences and interest. In November 2008, Harel Insurance filed its response to the application to approve it as a class action. In addition, Harel Insurance recognizes the rights of those involved to receive compensation in respect of the VAT rate that cannot be offset, and that a calculation of the value of a vehicle that was acquired after June 1, 2005 was prepared by Harel Insurance with the VAT component. The application therefore makes no distinction between that claimed and Harel Insurance's actual practice, so that it does not create a significant risk. In practice, the application is only relevant for those involved who despite Harel Insurance's said practice, did not exercise their rights vis-à-vis Harel Insurance. According the courts' recommendation giving during a hearing held on September 2009, the parties are negotiating. 12. During April 2008 a claim was filed in Jerusalem District Labor Court against Harel Insurance (consolidated company) and other insurance companies, together with a request for approval as a class action. According to the claim, for manager’s insurance policies that were sold up to 2000, the respondents tend to pay insured women who have reached retirement age a lower monthly payment than a man with the same data, giving the reason that the average woman’s life span is longer than that of men. On the other hand, the plaintiff claims, the respondents charge a "risk" premium from women at the same rate that they charge men, even though the death rate of women is lower during the period of "risk" coverage. According to the plaintiff, during 2001, the respondents amended the policies, by removing the alleged discrimination and determining lower "risk" premium rates for women than those for men. According to the plaintiff, the respondents did not amend the alleged discrimination in the older policies issued before the change was made. Cause for the claim is: alleged discrimination contrary to the Law Prohibiting Discrimination in Products, Services and Entry to -2

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd)

A. Class Actions and requests to approve petitions as a class action (cont'd) Entertainment Facilities and Public Places 5761- 2000 and contrary to the laws regarding discrimination against women; breach of provisions in |Supervision of Financial Services (Insurance) Law 5741- 1981; unjust enrichment; deception, breach of the requirement for discovery, and abuse of distress and inexperience of the plaintiff, contrary to Consumer Protection Law 5741-1981. On September 28, 2008, the Jerusalem District Labor Court dismissed the claim due to lack of material jurisdiction since the subject of the claim involved insurance and not employee-employer relations. During On November 2008, an appeal was filed on this decision and the hearings on the appeal took place in April 2009. In September 2009, a ruling of the National Labor Court was issued which accepted the appeal and stipulated that the District Labor Court has the authority to hear the suit regarding the facts of the leasing only. The District Labor Court stipulated that the parties will amend their statements filed with the Court pursuant to this ruling. Harel Insurance and the other defendants intend to file an appeal to the High Court of Justice on the ruling of the National Labor Court 13. During July 2008, a claim and request to recognize the claim as a class-action suit was submitted to District Court of Tel Aviv, against Harel Insurance (consolidated company), claiming that Harel Insurance avoided, allegedly, payment to a third party for the full amount of damage, under property insurance, because the third party chose not to repair his vehicle. According to the claimant, Harel Insurance violated provisions of Insurance Contracts Law, 5741-1981 and Section 12 (a) of Schedule to Supervision of Insurance Business Regulations (Terms of Contracts to Insure Private Vehicles), 5746- 1986. The personal claim claimed from Harel Insurance is NIS 175. The claimant estimates that the claim for all members of the group, which he wishes to represent, is NIS 173 million. A preliminary review of the claim shows that this amount is unjustified and is without proportion. During February 2009, Harel Insurance submitted its reply to the request to approve a class action suit. Pursuant a preliminary hearing, that took place on June 2009, the court recommended the parties to try to reach an agreement, and set another hearing to February 2009. 14. During July 2008, a claim and a request to recognize the claim as a class-action suit was submitted to District Court of Tel Aviv against Harel Insurance (consolidated company). The claimant claims that apparently Harel Insurance avoided paying and / or indemnifying its insured parties for damages caused to safety devices installed in their vehicles in the event of a total or "almost" loss or theft, and it (Harel) had its insured parties agree, contrary, apparently, to provisions of the Commissioner of Insurance, to a settlement. The claimant claims, that as a result, Harel Insurance profited from insured parties and has violated its legal obligations. The claimant group, which the claimant requests to represent, includes all insured parties, who received, from April 1, 2004, from Harel Insurance indemnification for damages to a private or commercial vehicle up to 4 tons, including for total loss, "almost" total loss or theft, while they were insured by Harel Insurance, under Chapter A of Supervision of Insurance Business Regulations (Terms of Policies to Insure Private Vehicles), 5746-1986, and did not receive all and / or part of any insurance indemnification for loss or damage caused to safety devices that were installed in their cars. The personal claim against Harel Insurance totals NIS 5,250. The claimant notes that he does not have all resources available in order to accurately estimate the size of the group, but he does estimate that the amount of the claim for all members of the group, for a period of 4 ½ years, totals NIS 37 million. During February 2009, Harel Insurance submitted its reply to the request to approve a class action suit. The discussion in the case was consolidated with other similar requests to represent, which were submitted against additional insurance companies. 15. During October 2008, a claim was filed against Harel Insurance (consolidated company) at Tel Aviv District Court together with an application to recognize it as a class action. The subject of the claim is that Harel Insurance allegedly sells dental insurance as part of group policies to those who are already covered by another group policy. According to allegations in the claim, Harel Insurance does not prevent a situation of multiple insurance stemming from the fact that both spouses and their children are insured with a group policy that is drawn up by the employer of each spouse. The group of claimants that the claimant wishes to represent is anyone who has paid for multiple dental insurance.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd)

A. Class Actions and requests to approve petitions as a class action (cont'd) The claimants estimate the amount of the claim for all members of the group they seek to represent at NIS 20 million. During March 2009, Harel Insurance submitted its reply to the request to approve a class action suit, and plaintiffs submitted their reply. According to the court's recommendation given during a hearing held on September 2009, the parties are negotiating. 16.During December 2008, a claim was filed with District Court of Tel Aviv against Harel Insurance (consolidated company) together with a request to recognize it as a class-action suit. The claim's premise is that Harel Insurance, apparently avoided paying third parties in vehicle property insurance issues, full compensation for impairment in the value of a vehicle, adding an assessor's professional opinion, and having third parties sign settlements contrary to law, this without attaching a counter opinion prepared by an assessor of their choice. The grounds for the claim made include a violation of legal responsibilities set out in provisions of Insurance Policy Law, Supervision of Insurance Business (Terms of Policies for Private Vehicle Insurance) Regulations, provisions issued by the Commissioner of Insurance, and illegal enrichment. The group that the claimant asked to represent is any person, who was entitled, apparently, to receive from Harel Insurance, as a third party, funds and/or insurance indemnification for impairment in value damages of a vehicle during the seven years before the date of submitting the claim, and Harel Insurance did not transfer the full amount due to him, for any impairment in value of the vehicle. The claimant notes, that he does not have the appropriate resources in order to evaluate the size of the group and the claimed compensation. Based on various assumptions, the claimant estimates that the amount of damage to all members of the group, which he wishes to represent, is NIS 80 million. In March 2009, Harel Insurance filed its response to the application to approve it as a class action. The discussion in the case was consolidated with other similar requests to represent, which were submitted against additional insurance companies. 17. During December 2008, a claim was filed with District Court of Tel Aviv against Harel Insurance (consolidated company) together with a request to recognize it as a class-action suit. The claim's premise is, that Harel Insurance, apparently avoided paying third parties in vehicle property insurance issues, the full amount of assessors' professional fees paid by a third party, and in lieu, pays professional fees at amounts which it determined to be sufficient for the professional opinions. The premise for the claim made is a violation of legal responsibilities set out in provisions of Insurance Policy Law, Supervision of Insurance Business (Terms of Policies for Private Vehicle Insurance) Regulations, and illegal enrichment. The group which the claimant requests to represent is any person, who was entitled, apparently, to receive from Harel Insurance, as third-party funds for expenses incurred for an assessor's professional opinion, during the seven years before the date of submitting the claim, and Harel Insurance did not transfer the full amount due to him, for any impairment in value of the vehicle. The claimant notes, that he does not have the appropriate resources in order to evaluate the size of the group and the claimed compensation. Based on various assumptions, the claimant estimates that the amount of damage to all members of the group, which he wishes to represent, is NIS 33 million. In March 2009, Harel Insurance filed its response to the application to approve it as a class action. The discussion in the case was consolidated with other similar requests to represent, which were submitted against additional insurance companies. 18. During January 2009, a claim was filed with District Court of Tel Aviv against Dikla Insurance (consolidated company) together with a request to recognize it as a class-action suit. The claim's premise is that Dikla continues, apparently, to collect from insured parties of long-term care insurance, a premium after an insurance event, after the end of the insurance coverage term, and even after the death of the insured party. The claimant requests to represent all insured parties of Dikla long-term care insurance, who were party to an insurance event, and Dikla continued to collect premiums from them after the insurance event, and insured parties who were not part of any insurance event and Dikla continued to collect premiums from them, apparently, even after their death. The claimant estimates his claim at NIS 3,600 and the claim for all members of the group at NIS 1.3 million. As there is an overlapping between the application to approve the aright of representation and the application for the right of representation described in Clause 8 above, the parties came to an agreement according to which the application for representation will be "frozen" until after a decision is made for the application described in Clause 8 above.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd)

A. Class Actions and requests to approve petitions as a class action (cont'd) 19. During February 2009, a claim was filed with District Court of Tel Aviv against Dikla Insurance (consolidated company) together with a request to recognize it as a class-action suit. The claim's premise is that Dikla does not pay, apparently, long-term care insurance compensation, from the date of an insurance event, but rather from the date that Dikla received the documents supporting the fact of an insurance event. In addition, it is also claimed that Dikla does not pay said compensation for the days from the date that the claim is recognized and until the next calendar month, and that this payment is even made 7 days late. The claimant requests to represent all insured parties of Dikla long-term care insurance, who Dikla delayed, apparently, the insurance compensation due to them . The claimant estimates her claim at NIS 14,036 and the claim for all members of the group at NIS 6.3 billion. On June 2009, Dikla had submitted its' response to the request to approve the claim as a class action. On October 2009 the plaintiff submitted her reply. 20. During February 2009, a claim was filed with District Court of Tel Aviv against Dikla Insurance (consolidated company) together with a request to recognize it as a class-action suit. The claim's premise is that Dikla does not pay insurance compensation vis-à-vis "Siudei Mushlam", during the policy's fixed waiting period, while violating, apparently, legal provisions; that Dikla did not pay any interest differences on monthly insurance compensation; while violating, apparently, legal provisions; that Dikla did not calculate, apparently, correctly CPI-linkage differences on insurance compensation; that Dikla continued to collect from its injured parties, insurance premiums for certain periods when the insured parties were under long-term care; that Dikla delayed, apparently , payment of long-term care compensation. The claimant requests to represent all insured parties of Dikla "Siudei Mushlam" insurance, who were party to a long-term care insurance event, and Dikla did not pay them, apparently, the full amount of insurance compensation due to them, as detailed above and/or they paid insurance premiums even after an insurance event. The claimant estimate his claim at NIS 10,228 and the claim for all members of the group at NIS 795.5 million. On July 2009, Dikla had submitted its' response to the request to approve the claim as a class action. 21. During March 2009, a claim was filed with District Court of Tel Aviv against the company and Dikla Insurance (consolidated company) together with a request to recognize it as a class-action suit. The claim's premise is that further to enactment of Transplants Law, 5768-2008, ("Transplants Law") and the January 14, 2009 provisions of the Commissioner of Insurance regarding the prohibition against insurance coverage of transplants that were made contrary to the Transplant Law regarding the prohibition against trade in organs, apparently the insurance risk of health insurance policies of the company and Dikla was canceled, but notwithstanding this, the company and Dikla continued to collect premiums also for this risk. The claimant estimates his claim at NIS 502 against the company and NIS 71.5 against Dikla. The claimant did not estimate the amount of damages claimed for all members of the group. On September 2009 the company submitted its reply and on November 2009 Dikla submitted its reply to the request to approve the petition as a class action. 22. In March 2009, an action was filed in the Nazareth District Court and an application to approve it as a class action against of the consolidated company, Harel Insurance. The subject of the action is on the obligation that the Company does not pay insurance compensation regarding "plastic disfigurement" in policies which compensate for disabilities due to an accident. The Plaintiff estimates that the amount of his personal claim is NIS 13,235. The Plaintiff did not estimate the amount of the damage claimed by him for all the members of the Group. On September 2009 the Harel Insurance submitted its reply to the request to approve the petition as a class action. 23. In July 2009 a claim was filed in the District Court in Petah Tikva and an application of approve it as a class action against a subsidiary of Harel Insurance and additional insurance companies.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd)

A. Class Actions and requests to approve petitions as a class action (cont'd) The subject of the legal action was the claim that the payment of the defendants pay to taxi drivers in third- party claims for the days that the taxis do not operate is insufficient. The claimant also claims that the defendants apparently arbitrarily determined the amount of compensation paid for days the taxis did not work, which created surprise and raised the suspicion of coordination, and that the defendants condition, purportedly, the payment of insurance compensation on the recipients signing a letter of "receipt and release" and this is in bad faith and illegal. The Group that the plaintiff requests to represent is all the taxi drivers whose vehicles were involved in a road accident and who files as a result, during the seven years prior to the date of submitting the legal claim, third- party claims against the defendants, for which they were paid by the defendants ("as a compromise" and not in the framework of a verdict) amounts for "days that the taxis did not work" as a result of the damage to property. The plaintiff estimates the amount of his personal claim against Harel Insurance at NIS 470. The plaintiff estimated the amount of claim for the whole group he requests to represent, against the five respondent insurance companies at NIS 132 million. 24. On September 2009, an application to approve a class action against a subsidiary of Harel Provident Fund and ten companies managing provident funds and other insurance companies was filed with the Petah Tivka District Court. The subject of the legal claims contends that the defendants were apparently not entitled to deduct from the funds managed by them the effective costs (costs and various payments such as management fees, conversion commissions and various interest ) for the investment in TFC and that the investments in the TFC was done while apparently violating the obligation of trust and disclosure applying to the defendants. According to the plaintiffs, the defendants must bear the costs connected with managing the Members' Funds out of the management fees collected by them, and that effective cost is not, apparently, "direct expenses due to carrying out transactions in the provident fund's assets" which are permitted to be deducted from the provident fund's assets. The Group that the plaintiff wishes to represent is anyone who is (or was) a member in any of the provident funds managed by the defendants, where part of the funds managed by them was invested in TFC, during the period from November 10, 2005 until the date of filing the application. The plaintiffs estimate that the amount of the claims against Harel Provident Funds in the name of all members of the Group that they request to represent is an amount of NIS 6.5 million. The plaintiff estimated amount the claim for all the Group it requests to represents at NIS 214 million. B. Other Contingent Liabilities 1. During February 1995, an insurance agent of Sahar-Zion (consolidated company), , which merged with Harel Insurance (consolidated company), submitted a claim against Sahar-Zion in the amount of $950,311. The agent claims (in summary) that Sahar-Zion owes him money for insurance commissions for the period during which he served as the agent of a customer of Sahar-Zion, that Sahar-Zion has an obligation to pay him compensation for the entire period during which policies were issued, and that Sahar-Zion owes him compensation for work he performed in connection with preparation of the policies, work which became worthless after Sahar-Zion caused his work with the customer to be terminated, as well as compensation for damages to his reputation. Sahar-Zion has denied all of the agent's contentions, and has filed a counterclaim (together with Harel Insurance) in the amount of $114,139, for premiums paid to Sahar-Zion and to Harel Insurance by the customer through the agent, but held back by him. At the court's recommendation and with the agreement of the parties, the claim and the counterclaim have been submitted to arbitration. The claim can effectively be broken down into three damage sub-claims and three periods. The first sub-claim relates to work performed by the agent for the customer of Sahar-Zion during the first period preceding issuance of policies that are the subject of the claim. The second damage sub-claim relates to the period when the claimant acted as agent and received commissions in compensation for his work,

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd) B. Other Contingent Liabilities (cont'd) regarding which he claims not to have received the full commissions to which he was entitled. The third damage sub-claim relates to the period the claimant ceased to serve as agent and relates to future commissions and damages to his reputation. The management of Harel Insurance, based on an opinion of Harel Insurance's legal advisors, are of the opinion that the chances of the claim with respect to the first and third sub-claims are slim, since the work for which the agent is claiming damages was not performed on behalf and at the request of Sahar-Zion and because Sahar-Zion was not responsible for the termination of the agent's work for the customer. With respect to the second sub-claim, the chances of the claim cannot be evaluated, however, the monetary value thereof is small, relative to the entire claim. Therefore, no provision in respect of this claim was included in the financial statements. 2. During June 2004, a claim and a request to have the claim approved as a " derivative action " was filed with District Court of Tel Aviv against Yedidim Holdings and Management (1984) Limited ("Yedidim") (consolidated company), its former chairman and its former CEO, and against another consolidated subsidiary Harel Pension Fund Management (1987) Ltd., (controlling shareholder of Yedidim), by the minority shareholders of Le'Atid Pension Fund Management Company Ltd., ("Le'Atid") (a subsidiary of Yedidim) in the amount of NIS 15,605 thousand. The claim's premise is compensation for Atidit Pension Fund Ltd., a pension fund under Atidit's management, for use of various resources of Atidit, such as use of its operations infrastructure, goodwill, use of Atidit's property, for accepting an operating pension fund and loss of profits. The court deliberations are now before the summations phase in the claim and the request for approval as a derivative action. In addition, the claimants claim commission of NIS 3,177 thousand as part of their personal claim. From time to time, negotiations are held in order to settle the differences regarding the claim and the request for approval of a derivative action outside of the courts, without result. The parties have even sought out mediation in order to settle the differences between them. The mediate efforts were without results, and the dispute is to be deliberated in court, again. The parties submitted their summations. In the opinion of Yedidim's management, based on a legal opinion of its legal counsel, most of the claims that appear in the claim sheet are without merit. Regarding the entitlement, apparently, of the minority interest group to current commissions on the basis of agreements that Yedidim had with them, a suitable provision has been recorded in the financial statements. 3. There are contingent and actual claims against Turk Nippon Sigorta A.S. ("Turk Nippon") (a company controlled by the company) (see Note 6 (D) 1) submitted by four former employees of Turk Nippon regarding severance of the employee-employer relationship. A provision, in an immaterial amount, has been recorded in the financial statements, in accordance with a professional opinion by Turk Nippon's legal counsel in Turkey. C. Claims Settled During the Report Period 1. During October 2004, a petition against Harel Insurance (consolidated company) and against other insurance companies was filed in Tel Aviv-Yafo District Court, together with a request to approve the petition as a class action. In this petition, it is claimed that Harel Insurance, which insured the insured while he was a minor up to the completion of his military service within the framework of his father’s health insurance - should have stopped providing the insured with insurance coverage from the date of induction, for the reason that from the date of induction and onward, that health insurance was not in effect at all. Therefore - so the complaint claims, the claimant and his father (who is also named as a claimant in the petition) are eligible for a refund of the premiums paid during his military service. The plaintiffs ask that this complaint (that refers, as mentioned, to additional insurance companies they were insured with) be approved as a class action and estimate the amount of indemnities from the entire group to be approximately NIS 70 million. On January 15, 2009, the Court gave its decision on the claim, and rejected most of the issues that were raised against the respondents, including that regarding misleading information and nondisclosure. However, the court stated, that the respondents had the duty of providing disclosure regarding the significance of insurance coverage during the period of military service.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd) C. Claims Settled During the Report Period (cont'd) Accordingly, the Court rejected all monetary relief requested in the claim and approved only declaratory relief. Accordingly, the respondents must now disclose, in health-insurance policies, and refer the insured party to the fact that the use of the policy is subject, during any military service, to military guidelines that change from time to time. In addition, the court decided that from April 15, 2009, insured parties will be sent notices as part of the annual reporting that will include clarifications regarding the "subjugation of the health insurance policy to military provisions and guidelines". 2. On August 2007, a claim was submitted against Harel Investment House (consolidated company), together with a request to approve the claim as a class action. The claim was submitted by a couple who are clients of Harel Investment House, who claim that Harel Investment House charged them a transfer commission of NIS 15 and a commission for transfer of securities of NIS 19, illegally. The claimants wish to represent all clients charged commissions for transferring funds from their account or commission for transferring securities or any similar commission. The amount of personal claim for the claimant who is also a policyholder of Harel Insurance is NIS 305. The claimants estimate the amount of claim for the entire group that they wish to represent is NIS 5 million. On January 20, 2009, the court rejected the claims by the claimant, after it stated that the claim did not have any good chance of being accepted. 3. Harel Insurance (consolidated company) received tax assessment for 2000- 2001 regarding non-recognition of financial expenses on loans taken in proximity to distributing dividends. The additional tax according to these assessments is NIS 4.5 million. Harel Insurance submitted an objection to these assessments, which was rejected by the Tax Assessment Officer. During June 2005, Harel Insurance received injunctions for said years. Harel Insurance submitted a notice of an appeal for the said injunctions to the district court. During December 2006, Harel Insurance received tax assessments for 2002-2004. The additional tax according to these assessments, which refers to the above-mentioned non-recognition of financial expenses, is NIS 16.5 million. Harel Insurance submitted an objection to these assessments. On February 16, 2009, the Tel Aviv-Yafo District Court approved the agreement between income tax and Harel Insurance, under which the appeals submitted by Harel Insurance were accepted and the Orders issued by income tax were canceled. 4. In June 2007, a claim was filed against the consolidated company, Dikla, and an application to approve it as a class action. The action was filed by two insured persons under "Supplementary for Pensioners" policy, which is a collective insurance policy in the long-term care field. The action claims that the increase in tariffs made in a complementary policy to pensioners and changes which took place in the insurance cover at the time of renewing the collective insurance agreement, they contend illegal. The Plaintiffs requested to represent through their action all those insured as from 1995 in the "Supplementary for Pensioners" policy. The amount of the personal claim of the plaintiffs together is NIS 1,962. The plaintiffs estimate that the amount of the claim for all the members of the group they requested to represent is an amount ranging between NIS 58 million and NIS 115 million. On April 5, 2009, the court approved the request of the Plaintiffs to withdraw their claim. 5. During February 2006, a claim was submitted to Tel-Aviv District Court by Migdal Insurance Company, Ltd. ("Migdal") against the Bank Leumi employees’ organization, Bank Leumi and Harel Insurance (consolidated company). The premise for the claim is the group policy for dental insurance for Bank Leumi employees. Bank Leumi employees had previously entered into a group agreement for dental insurance with Migdal. As of March 2006, Bank Leumi employees were insured under a group agreement for dental insurance with Harel Insurance.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd) C. Claims Settled During the Report Period (cont'd) The main remedy requested by Migdal in this claim is enforcement of the agreement for dental insurance that existed between it and Bank Leumi and/or the Bank Leumi employees’ organization. Alternatively, Migdal petitions monetary remedies. Migdal places the amount of the complaint against all respondents together at NIS 30 million. The grounds for the claim against Harel Insurance are causing an alleged breach of contract, and unjust enrichment at Migdal’s expense. The court directed the claim to mediation which ended in a compromise agreement in the framework of which the claim was rejected. On April 21, 2009, the court confirmed the compromise agreement and gave it a force of law verdict. 6. During December 2007, a claim was submitted to District Court of Tel Aviv against the subsidiary Harel Insurance (consolidated company), together with a request to approve the claim as a class action. The claim argued that Harel Insurance does not, allegedly, settle third party claims for vehicle property insurance, according to the date determined by Insurance Contracts, 5741-1981, claims whose amount of claim is not in dispute and does not add linkage differences and interest to such payments when they are paid. Moreover, the claim stated that claims as said are paid in arrears with the condition of payment only if all those prejudiced sign an acceptance and release form, allegedly illegally. According to the claimant, Harel Insurance is unduly profiting by withholding the funds as said. The claimant claims that he cannot estimate the amount of damage, as he does not have all the information needed for such a purpose. On June 3, 2009, a court rolling, approving an agreement between the parties was giving, and the claim was settled. In the framework of the agreement, Harel Insurance clarified its' actions regarding the causes mentioned in the claim. 7. During February 2008, a claim was submitted to District Court of Tel Aviv against Harel Insurance (consolidated company), eight other insurance companies and a corporation that is not an insurer ("Respondents"), together with a request to approve the claim as a class action. The grounds for the claim were that the Respondents allegedly charge premium for insurance coverage for theft of vehicle audio systems, even if the audio system is an "integral system." The claim was mainly based on the claim that an "integral system" cannot be stolen and/or the chances of theft are exceptional and slim, and accordingly, premiums should not be charged for such a risk. The claimants did not include an estimate of the class action. After reviewing the circumstantional facts known to Harel Insurance, it seems that according to the standard policy, Harel Insurance's policy excludes coverage for the audio system from the basic policy, and that insuring audio system is an additional coverage, with payment, only taken out with the insured's agreement. Further more transpired that the applicant in this case, paid nothing for additional insurance for the audio system. On June 30, 2009, the court approved the request of the Plaintiffs to withdraw their claim. 8. In June 2009, an arbitrator's ruling was given in a legal action of the Electric Corporation against Harel Insurance, in the framework of which the ruling was issued in favor of the Electric Corporation for compensation of NIS 90 millions. The matter of the legal action is indirect damages (including the loss of profits and an increase in the production costs), due to damage which occurred to the property of the Electric Corporation which was insured in a policy that Harel Insurance issued. The policy is backed up by reinsurance for the full amount of the claim. The arbitration proceedings took place after an arrangement was made between the Electric Corporation, Harel Insurance and the reinsurers, according to which the liability (if and to the extent that there will be any) by virtue of the arbitration proceedings, were fully assigned with the agreement of the Electric Corporation to the reinsurers (hereinafter: "the Agreement"). According to the agreement, every debt that the arbitrator will determine will be directly that of the reinsurers to the Electric Corporation, without Harel Insurance having any exposure in connection with the results of the arbitration proceedings, and without the Electric Corporation being able to claim anything from Harel Insurance in connection with the claim. 9. During August 2007 a claim was submitted to District Court of Tel Aviv against Harel Insurance (consolidated company) and four other insurance companies ("respondents"), together with a request to approve the claim as a class action.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd) C. Claims Settled During the Report Period (cont'd) The ground for the claim was a demand to return premiums paid for the first three months of a health insurance policy, where an eligibility period of three months was determined. The claimants plead that since according to the policy terms, an insurance event that occurs within the eligibility period is not recognized for application of insurance coverage according to the policy, then the policyholder, allegedly pays insurance premiums for a product or service that is not supplied to him during the eligibility period and therefore collection of the payment is allegedly illegal. The claimants requested to represent all clients charged premiums for the eligibility period in health insurance policies or other policies. The amount of personal claim of the claimant insured by Harel Insurance was NIS 305. The claimants estimated that the amount of claim for all group members, that they wish to represent, against all respondents is NIS 731 million. On October 22, 2009, the court approved the request of the Plaintiffs to withdraw their claim. 10.During January 2008, a claim was submitted to District Court of Tel Aviv against Harel Insurance (consolidated company), together with a request to approve the claim as a class action. Clients of Harel Insurance who purchased riders for vehicle property insurance (such as: towing, windshields, and replacement vehicle) and whose policy was canceled during the term of insurance due to an insurance event of total loss or theft, submitted the claim. The claimants were allegedly entitled to return of the relative portion of the consideration paid for the riders, for the period that remained from the day of cancellation of the policy until the end of the original period of insurance and said payments were not returned. The claimant estimates that the group damages total NIS 8.8 million. During April 2008, Harel Insurance submitted its reply to the request to approve a class action suit and included a claim, that the applicant did not pay for the insurance coverage that he received under the policy, and that the request is based on an inappropriate assumption, that in the event of an insurance event of total loss, there must be a partial refund of the premium for additional coverage, while in this case, the policy was fully settled, and the insured party is not eligible for any refund, other than the insurance indemnity payment (which is far greater than the payment for additional coverage). During June 2008, the applicant replied to Harel Insurance's reply. In a preliminary hearing which took place in March 2009, the court recommended that the Applicant withdraw his application. On November 10, 2009, the court approved the request of the Plaintiffs to withdraw their claim. 11. On September 2009, an application was filed to approve a class action against a subsidiary of Harel Insurance and against nine other insurance companies with the Petah Tikva District Court. The subject of the legal claims contends that the defendants were not entitled, apparently, to collect an additional premium for compulsory vehicle insurance relating to age and/or the number of years of driving of the ensured or any additional person authorized to use the vehicle. The Group that the plaintiffs requests to represent are all the insured from which the defendants collected additional payment for a compulsory vehicle insurance certificate, for data relating to age and/or number of years of driving, during the periods starting 2004 until the date of filing the claim. According to the claim, the personal claim of the plaintiff, which was ensured with Harel Insurance, against Harel Insurance totaled NIS 800 to NIS 900. The Plaintiffs estimated the amount of the claim for all the members of the Group that they requested to represent against all the plaintiffs that (ten insurance companies) at NIS 1.3 billion, without giving details of dividing this amount between the defendants. On November 9, 2009, the Court approved the application of the plaintiffs to dismiss the claim. Accordingly, the class action was dismissed without an order for expenses.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd) C. Claims Settled During the Report Period (cont'd) 12. As mentioned in par. 1.1.5.2.15 in Chapter 1 of the Periodic Report, the dispute between Old Gilad and the Company, in connection with the services agreement, that was signed by Gilad's former CEO, was submitted for arbitration to Vice President Emeritus, Supreme Court of Israel, Justice Theodor Or. As most of the employers whose employees are members of Gilad (since 1995) are members through the new Harel- Gilad Pension Fund and through the provident funds that Harel Insurance acquired from Gilad, the parties attribute considerable importance to continuing to maintain and develop business ties between them. The parties therefore agreed in an agreement that was validated as an arbitration ruling on June 4, 2009, to end the dispute by a settlement, without either party agreeing to or acknowledging the allegations of the other party. Pursuant to the settlement, the parties will set up a joint team, headed by Gilad's CEO and the CEO of Harel Pension, to promote cooperation in a variety of areas. In addition, Harel Insurance will pay Old Gilad an amount of NIS 6.4 million, of which NIS 1.4 million will be paid immediately and the balance will be paid in 5 equal, consecutive, annual installments (index linked but with no interest). This amount was added to the goodwill produced from the acquisition. D. Commitments 1. On November 6, 2008, a transaction was completed under which the company acquired control of Turk Nippon, incorporated in Turkey. Upon completion of the transaction, the company held 87% of the issued share capital of Turk Nippon and the Turkish partners, who are engaged in insurance, with whom the company entered into a shareholders' agreement, hold approx. 10% of the issued share capital of Turk Nippon. The consideration paid for the share acquisition was NIS 9.34 million. Up to 2004, Turk Nippon held an insurer's license for non-life assurance, and until it was acquired by the company it has not issued any new policies. The control of Turk Nippon was acquired in order to renew its insurer's license and to run the company as an insurer operating in Turkey in all non-life assurance branches. With renewal of Turk Nippon's insurance license on April 2009, the company increased Turk Nippon's equity so as to comply with the equity requirements for an insurer, pursuant to applicable rules in Turkey. Up to December 31, 2008, the company invested NIS 3.3 million in Turk Nippon's equity. During the reporting period an additional amount of NIS 21 million was invested in favor of shares allocation. The Company's holdings rate of Turk Nippon, pursuant to the mentioned investment is approximately 93.87%. After the reporting period the company transferred NIS 1.8 million as share capital advance. The Company estimate it would transfer an additional amount of approximately YTL 4 millions (approx. NIS 10 millions according to NIS 2.53 per 1 YTL exchange rate), by December 31, 2009. 2. On December 31, 2008, Harel Insurance entered into a special agreement for Quota Share reinsurance with National Indemnity Company (NICO), a leading company in the insurance arm of Berkshire Hathaway. Under the Quota Share reinsurance agreement, NICO insures 20% of the retention in all the general (non- life) insurance sectors, including the liability branches of the Harel Group (Harel Insurance, in Greece (by Interasco S.A.G.I.) and in future business in Turkey (by Turk Nippon). The agreement shall apply to all the insurance business recorded from January 1, 2009, and shall be in force for two years. Gross reinsurance premiums that were attributed by Harel Insurance for NICO as part of the said transaction, amounted to NIS 331 million in the Reporting Period, of which NIS 179 million was reinsurance premiums earned during the reporting period. The effect on Harel Insurance's results during the reporting period is negligible. 3. On May 6, 2009, Harel UK, a wholly-owned subsidiary of the Company, received a broker's license from the English FSA. Receipt of this license enabled Harel UK to obtain the status of an approved broker from Lloyds. Receipt of this license will enable Harel UK to operate directly as a broker for transactions with the London insurance market. 4. On May 22, 2009, Harel Insurance (for its nostro portfolio and for the portfolio of reserves against yield- dependent liabilities), Dikla (for its portfolio of reserves against yield-dependent liabilities), Harel Pension, and other companies, entered into agreement to acquire 49% of the shares of a foreign company, which indirectly holds all the rights in an eight-storey office block in London that is leased to the British government for a long period. Clal Insurance and Clal Finance Group will hold an addition of 49% of the

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 6 - Contingent Liabilities and Commitments (cont'd) D. Commitments (cont'd) share capital and the remaining shares will be held by a foreign company which specializes in real-estate management in England. Harel Group's companies paid consideration NIS 125.3 million in respect of the transaction. The investment in the foreign company is presented according to the proportional consolidation method, pursuant the Groups' policy. 5. On June 16, 2009, a transaction was completed in which Harel Insurance and Dikla sold half of the ownership in the Givat Shmuel shopping mall (stages 1-3), to Azo-Reit Commercial Centers Ltd. ("Commercial Centers") and Azo-Reit Bilu Center Ltd. ("Bilu Center"), companies that belong to British Israel Investments Ltd. ("British"), for NIS 95 million. Part of the consideration for the acquisition (75%) was paid through an allocation to Harel Insurance and Dikla of shares in the Bilu Center company, such that upon completion of the transaction, Harel Insurance and Dikla hold 28% of the issued and paid-up capital of Bilu Center (at full dilution).The balance of the consideration (25%) for acquisition hafe of the ownership in Givaat Shmuel shopping mall, is extended as a loan by Harel Insurance and Dikla to Bilu Center, concurrent with a loan, pro rata to Commercial Centers holding in Bilu Center. Harel Insurance and Dikla acquired stages 1 - 3 of the Givat Shmuel shopping mall from Gindi Investments 1 Ltd., Gindi Project Investments 2006 Ltd., and Dagesh Aviv Construction Company Ltd., in a transaction that was completed on July 31, 2008, for NIS 184 million. At that date, the parties signed an agreement to acquire stage 4 of the shopping mall, which was leased to Bank Hapoalim Ltd. for a period of ten years (plus an option to extend the lease period). Upon completion of the transaction, Harel Insurance and Dikla hold half of the ownership in the Givat Shmuel shopping mall (stages 1-3), and they also hold 28% of the issued and paid-up capital of Bilu Center and the entire ownership of Stage 4 of the Givat Shmuel shopping mall, acquisition of which was completed on March 3, 2009 for NIS 13.6 million, plus VAT. The Givat Shmuel shopping mall was acquired mainly from reserves held against yield-dependent commitments (profit-sharing policies) of Harel Insurance, so that the sale of half of the shopping mall has no material impact on the Company's performance or that of the subsidiaries. 6. On May 14, 2007, the Company entered into agreement with Israel Credit Cards Ltd. (CAL) to set up a joint company that would engage in extending credit to customers, based on a unique credit-card platform that CAL would issue for this purpose for the joint company. The parties also signed an agreement regulating the joint activity as part of the joint venture until the necessary regulatory approval is obtained for establishing the joint company, including approval from the Bank of Israel as the joint company is an auxiliary banking corporation. Despite the considerable time that has passed since the agreements were signed, Bank of Israel approval has not been forthcoming and the parties therefore concluded that such approval cannot be expected in the near future. The parties therefore reached an agreement according to the Company would abandon the joint venture and leave it exclusively in the hands of CAL. Accordingly, on August 30, 2009, the Company and CAL signed an agreement arranging the Company's departure from the joint venture and the method of settlement of the accounts between the parties with respect to the results of the activity in the joint venture. Pursuant to the provisions of the agreement, the final settlement of accounts regarding the outcome of the venture will take place on June 30, 2011. According to the agreement the Company's exposure is limited to a maximum of NIS 4 million.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 7 - Management and Capital Requirements 1. Management's policy is to hold a stable capital base with the view to maintain the Group's ability to continue its operations so as to be able to yield a return to its shareholders and support the future business operations. The institutional entities, the company managing the mutual funds and the company that is a member of the stock exchange, which are consolidated in the financial statements are subject to the regulatory capital requirements. 2. Following are details regarding the required and calculated capital of the subsidiaries which are insurance companies in accordance with the Supervision of Insurance Business Regulations (Minimum Shareholders' Equity Required for an Insurer) (Amended) - 2004 (hereinafter: "the Capital Regulations) and the Commissioner's directives:

As at September 30, 2009 As at December 31, 2008

Harel Insuranse Dikla Harel Insuranse Dikla Thousand NIS Minimum Capital Amount required according regulations and Commissioner's provisions (A) 2,399,484 167,553 2,319,682 153,853 Calculated amount according regulations: Primary capital 2,094,313 167,748 1,542,360 157,748 Subordinated capital 903,240 - 791,785 -

Total capital calculated according regulations 2,997,553 167,748 2,334,145 157,748

Surplus (B) 598,069 195 14,463 3,895 Providing this surplus is a confined capital amount according to the Supervisor's directives: - 135,157 - 70,993

Primary capital Minimal amount required per capital regulations 83,098 83,098 80,191 80,191 Calculated amount per capital regulations: 2,094,313 302,905 1,542,360 228,741

Surplus 2,011,215 219,807 1,462,169 148,550

As at September 30, 2009 As at December 31, 2008

Harel Insuranse Dikla Harel Insuranse Dikla Thousand NIS (A) The amount required includes, inter alia,

Deferred acquisition expenses in life assurance and health insurance and acquisition expenses in respect of insurance portfolio 775,589 13,695 770,408 11,629 Investments in consolidated companies and management rights of provident funds and pension funds 759,388 - 767,667 - extraordinary life assurance risks 202,339 - 197,422 - Assets unrecognized as their definitions in capital regulations, (mainly loans and advances to agents) 45,692 55 37,482 58 Special share capital requirements according Commissioner's instructions 48,454 - 35,942 -

1,831,462 13,750 1,808,921 11,687

* Including a non recognized asset of NIS 10.9 million, in Harel Insurance; and NIS 0.9 million in Dikla, for passive deviation not approved in the Investments Regulations – holding of an asset of a non-approved foreign state. The balance of the investment close to the date of publication of the statement is without any significant change.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 7 - Management and Capital Requirements (cont'd) (B) In addition to the general legal requirements, the companies distributing dividends from surplus capital in insurance companies are also subject to liquidity requirements and must meet the rules of investment regulations. 3. The Company undertook to supplement the required shareholders' equity of consolidated insurance companies up to 50% of the shareholders' equity required under the regulations and in an amount of no more than NIS 577 million in Harel Insurance and NIS 70 million in Dikla. The undertaking is in force as long as the Company is the controlling shareholder of insurance companies and it will be exercised only if the insurance companies has negative shareholders' equity. The Company also made an undertaking in connection with supplementing the shareholders' equity of the included company, ICIC, up to 50% of the shareholders' equity required under the regulations and in an amount of no more than NIS 11 millions. (the stated amounts are linked to the CPI index). As at the financial statements date, the insurance companies in the Group comply with the equity regulations. 4. In June 2008 a circular was published regarding the method of applying measurement and presentation rules under the IFRS in order to calculate the capital required and the capital recognized of insurance companies, as from the financial statements for the second quarter of 2008. The object of the circular was to determine the provisions regarding the method of applying the capital regulations regarding investments in investee companies (including insurance companies and management companies controlled by an insurance company). According to the circular the capital requirements in accordance with the Capital Regulations will continue to be based on the solo statements. In order to calculate the recognized capital according to the Capital Regulations, the investment of an insurance company in an insurance company or in a controlled management company, and other investee companies, will be calculated by the equity basis with full concatenation. 5. On February 2007 the Commissioner published a circular determining that as of the first quarter of 2007, the allocation for risks reserve in life assurance will be cancelled in the financial statements of insurance companies. At the same time, the a capital requirement was determined at the rate of 0.17% of the amount at risk on retention. Nonetheless, it was determined that the minimal capital requirement for the amount of risk, will not be less than the requirement on the day of transfer. The additional capital requirements in Harel Insurance is an amount of not less than NIS 190 million. 6. In February 2009, a directive was published by the Capital Markets Division on the subject of recording deferred purchase expenses in a management company of pension funds, according to which it was determined that the deferred purchase expenses are not a recognized asset for the purpose of calculating minimum shareholders' equity required from a management company. During the period the Company provided capital bills to a management company in the amount of NIS 33 million to be repaid on April 1, 2014 or at an earlier date set by the subsidiary. The capital bills are linked and do not bare interest. 7. In the framework of the Commissioner's approval to establish a designated subsidiary by Harel insurance, it was determined that the loans that Harel Insurance will give from the proceeds of the issue to related companies to finance the acquisition of operations of mutual funds will not exceed 15% of Harel Insurance's shareholders' equity, and will be granted subject to it being rated with at least a rating of BBB. 8. In the framework of the Commissioner's approval to purchase the operations of provident funds by Harel Insurance, it was determined that the amortized balance of the cost of the acquisition will be added as a requirement of capital and will be presented in the statement of assets and liabilities against minimum shareholders' equity. 9. In November 2009 an amendments to the Supervision of Financial Services Regulations (Minimum Shareholders' Equity Required from an Insurer) (Amendment) - 2009 (hereinafter: "the regulations") were published.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 7 - Management and Capital Requirements (cont'd) In the framework of the regulations, it was add to the existing capital requirements new capital requirements for these categories: a. Plans ensuring a yield in life assurance against which or against part of which there are no designated bonds. b. Operative risks. c. Credit risks according to the level of risk characterizing the various assets. d. Catastrophe risks in general insurance. e. The Commissioner will be entitled to permit, subject to meeting the complete capital required according to these regulations, a reduction in the capital requirements at a rate of up to 35% of the original difference created for the insurer, due to the purchase of provident or pension fund operations or a company that manages provident funds. According to the Amendment, an insurer will be obligated to increase its shareholders' equity at rates detailed below, out of the difference between the shareholders' equity required from it, according to the above-mentioned regulations, and the shareholders' existing equity (hereinafter - the difference), for each of the dates stated below at the following rates: - Up to the date of publishing the financial statements as at December 31, 2009 at least 30% of the difference; - Up to the date of publishing the financial statements as at June 30, 2010 at least 45% of the difference; - Up to the date of publishing the financial statements as at December 31, 2010 at least 60% of the difference; - Up to the date of publishing the financial statements as at June 30, 2011 at least 75% of the difference; - Up to December 31, 2011, the balance of the difference will be fully completed. Based on this amendment, the minimum capital required from the Group's insurance companies, as at December 31, 2009 (on the basis of the data as at September 31, 2009), is expected to increase by NIS 301 million in Harel Insurance, and about NIS 9 million in Dikla, and NIS 2 million in ICIC. According to the surplus capital existing on the balance sheet date, it does not expect to be required to complete capital, up to the date of publishing the financial statements as at December 31, 2009. The balance of the difference (70%) less the exemption mentioned in clause e above (which totals NIS 255 million in Harel Insurance), aggregates an amount of NIS 448 million in Harel Insurance, NIS 22 million in Dikla and NIS 5 million in ICIC. According to the surplus capital existing on the balance sheet date, the insurance companies in the Group will be required to complete the capital for an amount of NIS 151, and NIS 31 million in Harel Insurance and Dikla, respectively, in order to meet the full capital requirements according to the above regulations, and in ICIC no additional capital requirements are expected. It should be mentioned that the capital requirements resulting from the draft regulations detailed in Clause 11 below, to the extent that it will be approved, is expected to increase the minimum capital requirements in Harel Insurance by NIS 80.5 million. 10. The Stock Exchange is acting to amend its code in such a way that it will increase shareholders' equity requirements from its members. One of the subsidiaries of Harel Financial Holdings Ltd., which is wholly- owned by the Company, is a member of the Stock Exchange. According to the estimate that the Stock Exchange prepared, and given that other parameters in its operations will not be changed, the subsidiary will be required to increase its capital (primary and secondary, as defined in the proposal) for a total amount of NIS 25 millions. As mentioned, the Stock Exchange's proposal has not yet been approved by the competent factors, and the data presented is an estimate of the possible effects of this amendment. 11. On June 2009, a second draft Control of Financial Services (Provident Funds) (Minimum Capital Required of a Management Company) Regulations, 5769-2009, was published, as well as a draft circular concerning capital requirements for management companies , (the instructions). Pursuant the instructions, the minimum capital required of a management company at the reporting date shall be no less than the amount of both:

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 7 - Management and Capital Requirements (cont'd)

a. A demand for a tiered capital according to the level of assets managed, but not less than NIS 10 million. b. Capital demands for non recognized assets including for intangible assets (goodwill and deferred purchase expenses) and assets which are invested contrary to the investment regulations.

According to the provisions, there is a possibility to avoid the need to maintain capital in amounts of intangible assets, if the minimal capital will be deposited in a trust account and amounts in it will not be withdrawn, without the prior approval of the Commissioner. The Company is considering this possibility and the calculation will be done accordingly. Moreover, a management company whose shareholders' capital on the date of publishing the regulations is less than the starting shareholders' capital required in the regulations, is required to increase its shareholders' capital at least by half of the amount required as at March 31, 2010 and the balance of the amount up to December 31, 2010. The provisions of the circular shall apply to all management companies excluding a company that manages a Sectoral provident fund and an old pension fund management company that is owned by the members. The Commissioner and the management companies are discussing the draft circular. According to the calculation of the capital requirements according to the new draft regulations, a demand for additional capital is expected to be added to the capital requirements of companies that manage provident funds owned by the Group in an amount of NIS 59 million and for companies managing pension funds in the Group an amount NIS 70 million. The depositing of the capital with a trustee will reduce the addition to the capital required from companies that manage pension funds of NIS 48 million. The subject is being discussed with the Commissioner. 12. On July 10, 2007, the European Union adopted the proposed version of the Solvency II Directive (hereinafter: "the Proposed Directive"). The proposed directive is a fundamental and comprehensive change in the regulation relating to the ensuring the payment ability and capital adequacy of insurance companies in the countries of the Union. According to the timetables set by the European Union, implementation of the proposed directive in the countries, members of the European Union, is expected during the second half of 2012. According to the circular that the Commissioner of Insurance published, he intends to implement the provisions of the proposed directives regarding insurance companies in Israel on the date of their implementation in the countries of members of the European Union. The proposed directive is based on three levels: quantitative requirements, qualitative requirements, and disclosure requirements. The Group started to implement the proposed directive according to the timetables set. On September 30, 2009, a report was submitted to the Commissioner of Insurance regarding the QIS4 results - a quantitative review evaluation. The report includes the economic balance sheet and calculation of risk-based capital requirements, and was prepared according to the directives of the QIS4 document published in Europe, and according to the adjustments by the Commissioner in Israel. 13. On January 25, 2009, the Commissioner published a letter regarding "a relief in the capital required from an insurance company regarding the secondary rate of capital". According to the letter, an insurance company will be entitled to include, in the framework of recognized shareholders' equity, secondary capital at a rate of 75% of the total increase of primary capital, and not at a rate of 50% as determined in the Supervision Regulations, and this until a maximum of 60% of total primary capital. This relief will apply to: An increase in the primary capital created as a result of infusing funds into an insurance company by the controlling shareholder in it, as from December 1, 2008 until June 30, 2009. Increase in capital due to a transfer of companies, whose main business is the holding of real estate assets within the meaning of Section 23 C. of the Investment Regulations. The increase in the rate of such secondary capital will be reduced in a straight line as from June 30, 2009 until June 30, 2010.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 7 - Management and Capital Requirements (cont'd) 14. In the framework of the change in structure that the Company made on December 31, 2008, the Company transferred to Harel Insurance its full holdings in two companies, whose main business is the holding of real estate and received the relief mentioned above. As a result of this, the calculated shareholders' equity of Harel Insurance, correct as at December 31, 2008 (the date of completing the change in structure) increased, as calculated in accordance with the regulations by NIS 20,605 thousand. Correct as at September 30, 2009, the Company do not utilizes all the secondary capital it has and therefore does not benefit from this relief. 15. According to the letter that the Commissioner published in January 2009, regarding the relief in the capital required from insurance companies, an asset held contrary to the investment regulations which deviates from it, is passive and which was created after October 2008 will not be considered as a non recognized asset as defined in the capital regulations, subject to the prior approval of the Commissioner. Correct as at September 30, 2009, the subsidiaries which are insurance companies have a number of passive deviations which are not considered as a non recognized asset according to the said approval of the Commissioner. 16. On March 30, 2009, the Commissioner published a circular according to which, as from the financial statements for 2008 until December 31, 2010, an insurance company and a management company will not distribute a dividend without the prior approval of the Commissioner, and in any case the amount of the dividend will not exceed 25% of the distributable profits. 17. On November 3, 2009, the Commissioner published a draft circular relating to the composition of recognized shareholders' equity of an insurer. The draft sets forth rules for the structure of recognized shareholders' equity of an insurer, and the framework of principles to recognize various components of capital and classify them to the different capital levels. The Company is studying the directives of the draft and, at this stage, cannot estimate the consequences - inter alia, due to a lack of clarity regarding the consequences of the draft on the primary and secondary capital existing in the Company. The insurance companies and the Commissioner are expected to hold discussions on the subject. Regarding this matter, the Commissioner issued a temporary order, according to which from the period of the start of the amendment coming into force until the date on which the Commissioner will announce that there is no change in definitions, in the structure and calculation of the existing capital of the insurance companies. Note 8 - Significant events during the reporting period a. During the reporting period, positive yields were recorded in most investment channels in the capital market. Notwithstanding these positive trends, Harel insurance did not collect during the period of report variable management fees. According to the mechanism for collecting fixed management fees in the legislated arrangement, an insurance company will not collect variable management fees for yield- dependent policies sold between the years 1991 and 1993 until achieving investment profits for the assets standing against the yield-dependent liabilities. Consequently, correct as at September 30, 2009, the estimate variable management fees which Harel Insurance will not collected according to the mechanism described above, totaled an amount of NIS 78 million. In October 2009, the positive trends of yields in the capital market continued and as a result the amount of variable management fees that Harel Insurance will not collect declined and stood on October 30 at NIS 50.2 million. During the reporting period Harel Insurance updated the estimated variable management fees it will not collect, and that were published on former reporting periods, with an additional amount of approx. NIS 35 millions. Following are estimations of variable management fees updated as at June 30, 2009, Marche 31, 2009 and December 31, 2008: NIS 138 million, NIS 253 million and NIS 381 million, respectively. b. During the reporting period, a subsidiary, which was incorporated as an SPC - Special Purpose Company (hereinafter - Harel Sal) first offered ETFs to the public in the framework of prospectuses that it published. Up to that time the Company was engaged in issuing cover options to the public. During the reporting period, Harel Sal issued 13 series of ETFs, and 20 series of cover options. The total liabilities presented in the consolidated statements for ETFs and cover options issued on the date of the financial statement aggregated an amount of NIS 808 million. After the balance sheet date, Harel Sal filed a draft prospectus with the Securities authorities to issue additional index products.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 8 - Significant events during the reporting period (cont'd) c. The controlling shareholder in the Company - The Hamburger Group and the Sampoerna Group - are negotiating to make internal changes in the Company’s core control. The negotiations are for the acquisition of 10% of the Company's shares by the Hamburger family from the Sampoerna at a price of NIS 112 per share. Closing the transaction is subject to the signature on an agreement between the parties and the existence of suspending conditions, which will be included in the agreement, including the approvals required by law. d. On June 2009, S&A Maalot Ltd., ("Maalot") announced the rating of the subsidiary's deferred liability notes were rated AA. In addition, Maalot announced a change on the forecasted rating of the deferred liability warrants from stable to negative. e. Regarding the enter of the consolidated company, Harel Insurance, into a special agreement for Quota Share reinsurance with National Indemnity Company (NICO), see Note 6(d)2. f. In June 2009 the Company's Board of Directors approved a plan to allot 848,092 option warrants. Of this quantity, in June 6, 2009, 698,956 option warrants were granted to 63 employees and officers in the Company and subsidiaries held by it. 133,596 options of them were granted to the person serving at that time as CEO of Harel Insurance, and 313,186 options were granted to senior officers in the corporation, as defined in the annual reports. In July 2009, the CEO of Harel Insurance announced his resignation. For additional details regarding the terms of the CEO's resignation and the expiration of his allocated shares, see par. (g) below. The option warrants are not marketable and can be exercised to 1 ordinary share of NIS 1 par value against an exercise addition of NIS 163 (the exercise price is linked to the consumer price index and will be adjusted for a cash dividend distribution). The option warrants can be exercised in 3 equal tranches starting after 24 months for the first tranche, 36 months for the second and 48 months for the last tranche and until 36 months have passed from the end of the vesting period of every tranche. The cost of the benefits incorporated in the option warrants allotted is based on the fair value on the date of their being granted less the options allotted to the person who served at that time as the CEO of Harel Insurance, aggregated an amount of NIS 22 million. This amount will be recognized as an expense in the statement of income over the vesting period of every tranche. The expense recognized during the reporting period for the cost of the mentioned benefit aggregated to approx. NIS 1,885 thousand. The fair value of the option warrants granted as mentioned above, is estimated while adopting the binomial model for costing the option. The parameters used in applying the model are as follows: Fluctuations expected in the prices of the share 34% Rate of interest with a zero risk 1.60% Price of the share on the date of granting 152.7 The expected fluctuations are determined on the basis of historic fluctuations in the price of the share. The lifespan of the option warrants was calculated by the binomial model based on the acceptable exercise multiplier and on the Company's past experience regarding employees leaving the Company. The rate of interest with zero risk is determined based on linked government shekel bonds while the balance of their period equals the expected lifespan of the option warrants. Regarding an addition shares allocation for employees after the balance sheet date see Note 9(f) below. g. In August 2009, the Company's Board of Directors decided to approve the retirement compensation to the previous CEO of Harel Insurance, Mr. Moti Rosen, who announced his resignation from Harel Insurance in July 2009. In this framework, Mr. Moti Rosen will be paid an amount of NIS 4 millions for the undertaking of Mr. Rosen not to compete with the Company's operations for a 30 months period from the date of ending his service in the Company. Regarding the options allotted to Mr. Motti Rosen, according to the Company's options plans and which have not yet been exercised, it was decided that the options allotted to him will expire. The total value of the options which expired is NIS 6.8 million based on their fair value on the date of their granting.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 8 - Significant events during the reporting period (cont'd) h. Pursuant to a decision from July 16, 2009 made by the Board of Directors of Harel Insurance, Financing and Share Issues Ltd., a wholly owned subsidiary of Harel Insurance the Company published on September 2, 2009, a shelf prospectus, pursuant the Securities Authority's approval for publication giving on the same date. i. At the end of August 2009, Zim and Africa Israel announced that there are uncertainties regarding their ability to meet their liabilities to repay the debts and the bonds issued on the dates on which they fall due. The Company's subsidiaries have investments in debt assets and shares in Zim and Africa Israel in their Nostro accounts, in their members' assets portfolios (yield-dependent policies, provident funds and pension funds) and in mutual funds. Following are details regarding the total investment of the Company's subsidiaries in this companies (in NIS millions):

Close to the date of As at September 30, 2009 publishing the statement All companies All companies in the AFRICA in the AFRICA arrangements ZIM ISRAEL arrangements ZIM ISRAEL

Total investment in nostro portfolios 53.36 14.48 30.07 63.60 14.38 39.5 Total investment in portfolios managed 313.83 36.47 179.20 370.53 48.82 221.04 for assets of members and mutual funds ("managed portfolios") % of total nostro assets 0.30% 0.08% 0.17% 0.36% 0.08% 0.22% % of total managed portfolios 0.58% 0.07% 0.33% 0.60% 0.08% 0.36% Scope of investment in shares in nostro 1.23 - 1.22 1.29 - 1.27 portfolios Scope of investment in shares in 1.14 - - 1.26 - - managed portfolios j. Amendment No. 14 to the Joint Trust Investments Law During November 2009, the Securities Authority published the Proposed Amendment No. 14 to the Joint Investments Trust Law. The object of the Amendment is to arrange the operations of ETFs and transfer them from a regime of disclosure to a regime of supervision, similar to the regime applying to mutual funds, this with the changes required due to the unique characteristics of the ETFs field. The main amendment proposals are: An ETF will be defined in a similar way and concurrently with a mutual fund and issuers of ETFs will be defined as managers of traded fund certificates (similar to fund managers). These certificates will change from a legal structure of "liability certificates" to a legal structure similar in nature to a mutual fund, in which the ownership rights in the assets will belong to the investors. As in the fund, also the ETFs will be institutionalized in an agreement between the manager of the ETFs and the Trustee, and will comprise units each of one which gives an equal right to the assets of the ETFs. In addition (and unlike a mutual fund), an ETF will also include a liability of the certificate manager to complete the difference (should one be created) between the amount to which the holder of the ETF is entitled at the time of redemption, derived from the change in the price of the asset followed and the actual value of the assets of the ETF. Unlike mutual funds, the manager of the ETF can "draw" funds from the arrangements, if the value of the assets is higher than the value of the liabilities, according to a mechanism to be determined. Implementation of the Amendment is not expected to have a significant effect on the results of the Groups' activity and financial position.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 8 - Significant events during the reporting period (cont'd) k. The Arrangements Law for 2009 legislated in July 2009, sets forth the amendments of the arrangements for the State Economy (Legislative Amendments to Achieve the Budget and Economic Policies Target for the 2002 Financial Year), 5765-2005, the Motor Vehicle Insurance Ordinance (New Version), 5730 - 1970, and the Compensation Law for Road Accident Victims, 5735 - 1975 (the "Compensation Laws"). In the framework of these Amendments, the responsibility for handling road accident victims was transferred to the health funds. In the framework of these Amendments, it stipulates that the compulsory vehicle insurance policy will not include cover for a resident for health services included in the 2 nd Amendment or in the Order according to the National Health Insurance Law, 5754 - 1994. Furthermore, the obligation for indemnity of many of medical institutions that provide the above medical services in the Compensation Laws, due to bodily injury, apply to the insurer of the user of the motor vehicle in a road accident in which he was involved, and will not apply to the insured party who is a resident. In order to finance the provision of medical services to road accident victims, given by the health funds, the insurer will transfer to the Compensation Fund for Road Accident Victims ("the Fund"), after the 10 th of every month, a rate to be determined by the Minister of Finance in an Order, from the insurance fees that the insurer collected in the previous months for all the compulsory insurance policies it issued. The Fund will transfer these amounts to the National Insurance Institute which will in turn transfer them to the Health funds. An amendments to the National Health Insurance Law, 5754 - 1994 stipulates that a Health Fund will not collect a payment for deductibles for these services. These amendments will apply as from January 10, 2010 when the obligation to transfer the insurance fees from an insurer to the Fund will apply for insurance fees for policies signed as from that date or from a later date. The amount has not yet been finalized nor the rate of compulsory insurance fees that the insurers will be required to transfer. At present the amounts will be required to be checked by the Ministry of Finance who will determine the amount which represents the cost which must be transferred relating to the transfer of responsibility for medical treatment to the Health funds. This transfer of responsibility should not have a significant effect on the results of the activity, excluding a reduction of 9% in the level of insurance fees in the compulsory vehicle field against a similar reduction in the claims clause for this field.

Note 9 - Events after the date of the financial statements a. On July 20, 2008, it was agreed between the Commissioner and the Clalit Health Services (hereinafter: "Clalit"), on the sale of the holdings of Clalit (35% indirectly ) in the subsidiary Dikla by August 1, 2009. Moreover, an agreement was achieved according to which Clalit will prepare up to 2011 a tender regarding the Clalit customer's group long-term care insurance , insured since 1998 by Dikla. Further to the above, on November 3, 2009, the Company engaged in an agreement with Mor - Institute for Medical Data Ltd., (a wholly-owned subsidiary of Clalit, which holds 35% of the share capital of Mor-Har Investments Ltd., which is the total owner of Dikla) (hereinafter: "the Mor Institute"), according to which the Company will purchase all the holdings of the Mor Institutes in Mor-Har (35% of the issued share capital of Mor-Har) in consideration for the allotment of ordinary shares of the Company, comprising 4.1% of the issued share capital of the Company before the allotment (considering the dormant shares held by the Company and without considering the options that the Company allotted). Closing the transaction is subject to meeting suspending conditions, including receiving the approvals required by law. The amount of the consideration will be determined according to the value of the shares allotted to the Mor Institute, according to the closing rate on the date of the allotment. As a result of this transaction, the Company's shareholders' equity will increase, goodwill relating to the investment in Dikla will increase and the minority rights will be cancelled.

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 9 - Events after the date of the financial statements (cont'd) b. On November 2, 2009, the Company announced that it is in contact with United Guaranty Corporation ("UGS"), of the AIG International Group, for the purchase of ordinary issued share capital (100%) of AIG Holdings in Mortgages in Israel Ltd. (AIG Holdings). AIG Holdings is the holding company whose sole operation is the holdings of all the issued share capital (100%) of EMI - Ezer Mortgages Insurance Company Ltd. ("EMI"), a company which operates in Israel as an insurer in the credit insurance business for residential purposes, secured by a mortgage (as a single branch - Monoline). At this stage it is not possible to estimate whether the contacts will end with a transaction between the parties. c. On October 21, 2009, the subsidiaries Harel Insurance, Dikla, Harel Pension, Gilad Pension, Harel Gemel Ltd. and Tzva Hakeva Savings Fund ("Tzva Hakeva") (together: "the Subsidiaries"), entered into a suspensive sale agreement with Tidhar Herzliya Enterprises Ltd. ("Tidhar") to acquire ownership of a building which houses regional medical clinics, and also contains commercial areas on the ground floor, which Tidhar is constructing at the corner of Ben Gurion and Rambam Streets in Herzliya ("the Sale"). The transaction will take effect when several conditions precedent are met, the most important of which are: (a) construction of the building is completed in accordance with the agreed specifications; (b) possession of those parts of the Sale which were leased to Clalit Health Services will be handed over; It is estimated that the suspending conditions will be met by the beginning of 2011. The overall consideration to be paid by the Subsidiaries for acquisition of the Sale will be determined according to a multiple of the rent, payable by the entities leasing the parts of the Sale, subject to various adjustments. The consideration is estimated to be NIS 60 million. In principle, the Sale is to be acquired from reserves held against yield-dependent liabilities (profit-sharing policies) of Harel Insurance, from yield-dependent reserves of Dikla, and from the asset portfolios of the members of Harel Gemel, Harel Pension, Gilad and Tzva Hakeva, so that acquisition of the Sale will probably not significantly affect the performance of the Company or the Subsidiaries. d. On October 28, 2009, Harel Insurance and Dikla together with a company specializing in real estate in England, entered into agreement to acquire rental property in London, on an area of 2,500 sq.m. ("the Property"). The Property is located in Clerkenwell in London. There is a long-term lease on the Property to Unicef UK, which uses the building as its UK headquarters. Harel Insurance and Dikla will hold 98% of the Property, and the company specializing in real estate will hold 2%. The overall consideration paid for acquisition of the Property is £11 million. The purchase of the property is done from the Nostro funds of Harel Insurance and Dikla. e. On November 27, 2009, Harel Insurance together with Ashtrom Properties Ltd. ("Ashtrom"), entered into a transaction to acquire a rental property in Leipzig, Germany, with a built area of 36,500 sq.m., most of which is rented to Deutsche Telecom AG in a 9-year contract, with an option to extend the lease. The investment was made through a partnership in which Ashtrom, through a subsubsidiary, holds 51%, and Harel Insurance holds 49% through a subsidiary. Total consideration for the property is 29 million euro. The partnership is financing the acquisition partly from shareholders' equity which was invested in it by Harel Insurance and Ashtrom, and partly by means of a bank loan under conditions of non recourse. Completion of the transaction is subject to meeting suspending conditions, including registering ownership of the property and a waiver by the Leipzig municipality of the right of refusal conferred upon it under German law. f. Subsequent to the outline for an offering of securities to employees and to an initial allotment made on July 6, 2009, on November 30, 2009, the Company's Board of Directors approved an allocation of 247,314 share options each to be exercised for 247,314 Company shares of NIS 1 par value (hereinafter: (the new allotment). The exercise price of the options is according to the closing price of the Company's share on the stock exchange immediately prior to the Board of Directors' decision (November 29, 2009), that is: NIS 181.8 per share, where this amount is linked to the CPI and fully dividend adjusted, all as specified in the outline plan. -2

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Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 9 - Events after the date of the financial statements (cont'd)

The new allotment is to managers in the Group's companies. Of the new allotment, 44,150 share options were allotted to Mr. Michel Siboni, who is the CEO of Harel Insurance and Chairman of the Board of Directors of the financial institutions which are subsidiaries of Harel Insurance (and this in addition to 44,150 share options which were allotted to him on July 6, 2009 when serving in his previous position). Of the new allocation, 190,702 share options were granted to senior executives of the Group's companies (including the allocation to Mr. Siboni). The economic value of very options allotted will be calculated according to the binomial model based on the Black& Sholes Model, according to the framework of the plan and according to the principles detailed in IFRS2 standard. The fair value of the share options allocated in the new allotment is estimated at NIS 13,694,000, taking into account the possibility that some employees may terminate their employment at an earlier date (excluding the Group's senior executives). The early departure rate is estimated at 5%-8% annually, based on a review of sample data for changes in the workforce at the ranks of the option recipients in recent years. The economic value of each share option offered to the recipients, taking into account employees who leave the Company and the probability of exercising the options early, at an exercise price of NIS 181.8 linked to the CPI, is NIS 61.1 on average. The overall value of the share options will be charged as an expense in the Company's financial statements, over the vesting period of the options, from the fourth quarter of 2009. The fair value of the above-mentioned option warrants granted is estimated while adopting the binomial model for costing options. The parameters used in applying the model are as follows:

Expected fluctuations in the prices of the share 34% The rate of interest without risk 1.60% The price of the share on the date of granting 152.7

The expected fluctuations are determined on the basis of historic fluctuations of the shares prices. The life period of the option warrants is calculated by the binomial model based on prevailing exercising multipliers and on past experience of the Company regarding Company employees leaving the Company. The rates of interest without risk is determined based on shekel-linked government bonds, where the balance of the period is equal to the expected life period of the option warrants. Calculation of the fair value does not take under consideration the fact that the options will not be registered for trading in the stock-exchange, that the options exercise period does not start on the allotment date but at a future date, subject to the continues of the offerees' employment by the Company, as detailed in the outline plain, and it also does not taking under consideration the tax that might apply at the exercise date or at the time of selling the exercised shares. g. On November 30, 2009, after first receiving the approval of the Compensation Committee and the Audit Committee of the Company, the Board of Directors of the Company and of Harel Insurance approved the terms of employment for Mr. Michel Siboni, Harel Insurance CEO and Chairman of the Board of the subsidiaries of Harel Insurance, and this effective from August 1, 2009. Michel Siboni's monthly salary will be NIS 150,000. Mr. Siboni shall be entitled to an annual bonus to be determined each year, but no less than 4 salaries. In addition, Mr. Siboni shall be also entitled to an annually bonus in the amount of NIS 890 thousands, every year until 2013, and that is according to his previous position terms of service. Mr. Siboni will be entitled to severance pay when he terminates his employment for the Company at a rate of 100%, minus the amounts accrued to his credit in respect of severance pay in managers' insurance and/or the pension fund. Mr. Siboni will be entitled to additional severance pay at a rate of 100% in respect of the period from August 1, 2009 and until his employment for the company ends. Mr. Siboni will be entitled to 8 months advance notice. Mr. Siboni will also be entitled to related conditions as is customary for senior officers of the Harel Investments Group.

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60 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Harel Insurance Investments & Financial Services Ltd. Notes to the Interim Consolidated Financial Statements Note 9 - Events after the date of the financial statements (cont'd)

Mr. Siboni undertook not to compete with the Company for a period of 60 months upon the termination of his employment for the Company. After his employment for the Company has terminated, Mr. Siboni will receive a further NIS 2.7 million, index linked, for this non-competition clause. In addition to the above, a further 44,150 share options were allotted to Mr. Siboni as detaild in clause d above.

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61 WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358

Harel Insurance Investments & Financial Services Ltd.

Annexes to the Interim Consolidated Financial Statements As at September 30, 2009

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd.

Appendix to the Interim Consolidated Financial Statements

Appendix A - Harel Insurance Company Ltd., details of assets for yield-dependent contracts and other financial investments

A. Assets for yield-dependent contracts

The following are details of assets held against insurance contracts and investment contracts presented at fair value through the statement of income: September 30 December 31 2009 2008 2008 (Unaudited) (Unaudited) (Audited) Thousand NIS

Real estate for investment 409,790 417,670 424,020

Financial investments Marketable receivables 5,874,568 4,176,080 4,322,243 Non marketable receivables 3,541,274 3,440,883 3,065,085 Shares 2,532,823 2,024,185 1,520,355 Other financial investments 1,608,752 1,410,715 1,281,658

Total financial investments 13,557,417 11,051,863 10,189,341

Cash and cash equivalents 396,160 217,430 297,222

Other 297,490 281,950 272,831

Total assets for yield dependent contracts 14,660,857 11,968,913 11,183,414 Payables 1,326 2,016 1,419 Financing liabilities 38,121 57,734 87,870

Financial liabilities for yield dependent contracts 39,447 59,750 89,289

B. Detail of other financial investments As at September 30, 2009 (Unaudited) Revalued at fair value through the statement of Available for Loans and income sale receivables Total Thousand NIS Marketable debt assets 600,184 3,802,540 - 4,402,724 Non marketable debt assets 214 - 7,502,974 7,503,188 Shares - 303,734 - 303,734 Other 365,561 938,114 - 1,303,675

Total 965,959 5,044,388 7,502,974 13,513,321

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd.

Appendix to the Interim Consolidated Financial Statements

Appendix A - Harel Insurance Company Ltd., details of assets for yield dependent contracts and other financial investments (cont'd)

B. Detail of other financial investments (cont'd)

As at September 30, 2008 (Unaudited) Revalued at fair value through the statement of Available for Loans and income sale receivables Total Thousand NIS Marketable debt assets 501,092 2,642,568 - 3,143,660 Non marketable debt assets 373 - 7,329,606 7,329,979 Shares - 264,994 - 264,994 Other 80,827 447,271 - 528,098

Total 582,292 3,354,833 7,329,606 11,266,731

As at December 31, 2009 (Audited) Revalued at fair value through the statement of Available for Loans and income sale receivables Total Thousand NIS Marketable debt assets 599,647 2,833,845 - 3,433,492 Non marketable debt assets 393 - 7,325,271 7,325,664 Shares - 179,152 - 179,152 Other 130,694 517,813 - 648,507

Total 730,734 3,530,810 7,325,271 11,586,815

1. Marketable debt assets Book Value Depreciated Cost (**) September 30 December 31 September 30 December 31 2009 2008 2008 2009 2008 2008 (Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited) Thousand NIS Thousand NIS

Government bonds 2,356,511 1,372,344 1,715,591 2,262,545 1,365,527 1,648,527 Other debt assets Other non convertible debt assets 2,018,343 1,737,697 1,692,903 1,959,224 1,867,336 1,887,245 Other convertible debt assets (*) 27,870 33,619 24,998 29,983 39,587 37,887 Total marketable receivables debt assets 4,402,724 3,143,660 3,433,492 4,251,752 3,272,450 3,573,659 attributed to accumulated profit and loss 45,003 34,313 143,147

(*) Convertible bonds presented according to cost basis and not according to depreciated cost. (**) Depreciated cost - cost less fund payments in addition (in reduction) the accumulated reduction according to the effective interest method of a certain difference between the cost and the payment amount, less a certain reduction for impairment attributed to profit and loss.

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd.

Appendix to the Interim Consolidated Financial Statements Appendix A - Harel Insurance Company Ltd., details of assets for yield dependent contracts and other financial investments (cont'd)

B. Detail of other financial investments (cont'd) 2. Non marketable debt assets

Book Value Fair Value September 30 December 31 September 30 December 31 2009 2008 2008 2009 2008 2008 (Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited) Thousand NIS Government bonds Designated bonds 3,572,787 3,553,187 3,547,315 4,257,676 3,931,605 4,028,794 Other bonds 19,301 17,586 19,858 21,600 19,325 22,110 Total government bonds 3,592,088 3,570,773 3,567,173 4,279,276 3,950,930 4,050,904

Other non convertible debt assets 3,910,886 3,758,833 3,758,098 3,964,304 3,596,446 3,358,632 Other convertible debt assets 214 373 393 214 373 393 Total non marketable debt assets 3,911,100 3,759,206 3,758,491 3,964,518 3,596,819 3,359,025

Permanent impairment attributed to accumulated profit and loss 18,441 7,929 15,463

3. Shares

Book Value Cost September 30 December 31 September 30 December 31 2009 2008 2008 2009 2008 2008 (Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited) Thousand NIS

Marketable shares 264,033 247,294 162,380 167,738 245,155 162,963 Non marketable shares 39,701 17,700 16,772 39,181 19,733 18,094

Total shares 303,734 264,994 179,152 206,919 264,888 181,057 Permanent impairment attributed to accumulated profit and loss 5,563 88,612 156,800

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd.

Appendix to the Interim Consolidated Financial Statements

Appendix A - Harel Insurance Company Ltd., details of assets for yield dependent contracts and other financial investments (cont'd)

B. Detail of other financial investments (cont'd)

4. Other financial investments

Book Value Cost September 30 December 31 September 30 December 31 2009 2008 2008 2009 2008 2008 (Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited) Thousand NIS Marketable financial investments 1,076,361 275,989 156,508 986,071 251,267 146,205 Non marketable financial investments 227,315 252,109 491,999 195,221 246,089 487,826 Total other financial investments 1,303,676 528,098 648,507 1,181,292 497,356 634,031 Permanent impairment attributed to accumulated profit and loss 40,526 53,733 89,925

Other financial investments include mainly investments in ETFs, participating certificates in mutual funds, investment funds, financial derivatives, forward contracts, options and structured products.

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd.

Appendix to the Interim Consolidated Financial Statements

Appendix B - Dikla Insurance Company Ltd., details of assets for yield dependent contracts and other financial investments

A. Assets for yield dependent contracts

Following are details of the assets held against yield dependent contracts and investment contracts presented at fair value through the statement of income:

September 30 December 31 2009 2008 2008 (Unaudited) (Unaudited) (Audited) Thousand NIS

Real estate for investment 13,029 11,446 11,286

Financial investments Marketable receivables 643,685 527,843 546,108 Shares 129,738 62,557 72,039 Other financial investments 117,184 70,692 66,730

Total financial investments 890,607 661,092 684,877

Cash and cash equivalents 57,919 77,607 57,230

Handled by loans and receivables including bank deposits Non marketable debt assets 227,074 226,206 201,124 Other 22,017 20,750 21,017

Total assets for yield dependent contracts 1,210,646 997,101 975,534

Payables 80 100 64 Financing liabilities 888 1,275 1,876 Financial liabilities for yield dependent contracts 968 1,375 1,940

B. Details of other financial investments

As at September 30, 2009 (Unaudited) Revalued at fair value through the statement of Available for Loans and income sale receivables Total Thousand NIS Marketable debt assets 1,922 387,074 - 388,996 Non marketable debt assets - - 82,455 82,455 Shares - 15,333 - 15,333 Other 22,392 36,303 - 58,695

Total 24,314 438,710 82,455 545,479

WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd.

Appendix to the Interim Consolidated Financial Statements

Appendix B - Dikla Insurance Company Ltd., details of assets for yield dependent contracts and other financial investments (cont'd)

B. Details of other financial investments (cont'd)

As at September 30, 2008 (Unaudited) Revalued at fair value through the statement of Available for Loans and income sale receivables Total Thousand NIS Marketable debt assets 3,054 292,662 - 295,716 Non marketable debt assets - - 69,614 69,614 Shares - 14,458 - 14,458 Other 6,650 27,509 - 34,159

Total 9,704 334,629 69,614 413,947

As at December 31, 2009 (Audited) Revalued at fair value through the statement of Available for Loans and income sale receivables Total Thousand NIS Marketable debt assets 2,135 304,873 - 307,008 Non marketable debt assets - - 58,433 58,433 Shares - 9,632 - 9,632 Other 5,644 27,825 - 33,469

Total 7,779 342,330 58,433 408,542

1. Marketable debt assets Book Value Depreciated Cost (**) September 30 December 31 September 30 December 31 2009 2008 2008 2009 2008 2008 (Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited) Thousand NIS Thousand NIS Government bonds 255,803 155,895 171,611 245,923 153,509 166,018 Other debt assets

Other non convertible debt assets 131,272 136,767 133,262 126,591 144,087 141,092 Other convertible debt assets (*) 1,922 3,054 2,135 2,024 3,267 2,907 Total marketable receivables debt assets 388,997 295,716 307,008 374,538 300,863 310,017 Permanent impairment attributed to accumulated profit and loss 4,331 3,441 12,312

(*) Convertible bonds presented according to cost basis and not according to depreciated cost. (**) Depreciated cost - cost less fund payments in addition (in reduction) the accumulated reduction according to the effective interest method of a certain difference between the cost and the payment amount, less a certain reduction for impairment attributed to profit and loss. WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358 Harel Insurance Investments & Financial Services Ltd.

Appendix to the Interim Consolidated Financial Statements

Appendix B - Dikla Insurance Company Ltd., details of assets for yield dependent contracts and other financial investments (cont'd)

B. Details of other financial investments (cont'd)

2. Non marketable other debt assets

Book Value Fair Value September 30 December 31 September 30 December 31 2009 2008 2008 2009 2008 2008 (Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited) Thousand NIS Total non marketable debt assets 82,455 69,614 58,433 83,004 65,303 53,256 Permanent impairment attributed to accumulated profit and loss 299 - 413

3. Shares

Book Value Cost September 30 December 31 September 30 December 31 2009 2008 2008 2009 2008 2008 (Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited) Thousand NIS

MarketableShares 12,935 13,684 8,905 7,866 13,500 8,600 Non-marketableShares 2,398 774 727 2,342 844 786

Total shares 15,333 14,458 9,632 10,208 14,344 9,386 attributed to accumulated profit and loss 227 5,036 8,558

4. Other financial investments

Book Value Cost September 30 December 31 September 30 December 31 2009 2008 2008 2009 2008 2008 (Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited) Thousand NIS Marketable financial investments 46,424 19,917 20,622 43,972 21,535 22,612 Non marketable financial investments 12,271 14,242 12,847 10,573 14,699 11,750 Total other financial investments 58,695 34,159 33,469 54,545 36,234 34,362 Permanent impairment attributed to accumulated profit and loss 2,503 2,906 6,728

Other financial investments include mainly investments in ETFs, participating certificates in mutual funds, investment funds, financial derivatives, forward contracts, options and structured products. WorldReginfo - 3809ef82-6864-48cf-a452-8acaeb2ae358